By Lucia Mutikani
WASHINGTON (Reuters) - U.S. consumer sentiment unexpectedly fell in February from an 11-year high amid worries over slowing economic growth, suggesting a recent weakness in spending might last for a while.
The ebb in sentiment came despite strong job gains over the last three months, signs of an acceleration in wage growth as well as cheaper gasoline prices, factors that economists had expected would buoy consumer spending in the months ahead.
"As it stands, the pullback in confidence, along with the early-year decline in retail sales, hints of slower consumer spending growth in the first quarter," said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto.
The University of Michigan said on Friday its consumer sentiment index slipped to 93.6 in early February from a reading of 98.1 in January. The drop could reflect an uptick in gasoline prices early this month.
Still, the index was at the second highest level since January 2007. Economists had expected the sentiment index to hold steady.
U.S. financial markets were little moved by the data.
Households were in early February less upbeat about current economic conditions as well as the outlook over the next six months.
The survey also showed a fairly big fall in household intentions to purchase long-lasting manufactured goods, while plans to buy automobiles were little changed.
There was also some softening in income expectations. A special question in the survey showed a greater propensity to save, which could explain the recent weakness in retail sales.
"The decline in income expectations is an unfavorable sign for consumer spending," said Daniel Silver, an economist at JPMorgan in New York.
"Increased savings is a possible explanation for why consumption has disappointed in recent months despite consumers receiving a windfall from the drop in gasoline prices, but it is hard to really know what to make of the responses to this question because it was last asked in 2010."
SPENDING LAG
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, weakened in December and January, surprising economists who had hoped that lower gasoline prices and a relatively robust jobs market would unleash a wave of discretionary spending.
But cheaper gasoline can still boost consumer spending, a sentiment expressed this week by a top executive at PepsiCo Inc (N:PEP).
"It takes a number of months before the consumer fully spends back the so-called benefit from lower gas prices," said Hugh Johnston, PepsiCo chief financial officer.
"You are going to see that over the course of six to eight months rather than an immediate change in consumer behavior, it just sort of assimilates over time." Softer consumer spending has prompted economists to lower their estimates for first-quarter growth. Still, they are optimistic about prospects for the rest of this year.
Growth this year is expected to be the strongest since 2005, driven in part by consumer spending, especially with the labor market gathering momentum. The economy added more than a million jobs in the last three months, a performance last seen in 1997.
"Consumer sentiment still remains at a relatively high level and paints a generally healthy picture of consumer perceptions of the economy," said Jim Baird, chief investment officer for Plante Moran Financial Advisors in Kalamazoo, Michigan.
A separate report from the Labor Department showed import prices recorded their biggest drop in six years in January as the cost of petroleum and a range of other goods fell, pointing to muted inflation pressures in the near term.
Import prices tumbled 2.8 percent last month, the largest decline since December 2008, after sliding 1.9 percent in December. The seventh straight month of declines in import prices also reflected the dollar's significant strength against the currencies of the United States' main trading partners.
"This report sets the stage for declines in both the producer and consumer inflation in January," said John Ryding, chief economist at RDQ Economics in New York.
"However, we believe the U.S. economy is experiencing an adjustment to much lower energy prices and that this does not signal the emergence of a sustained deflationary dynamic."In the 12 months through January prices declined 8.0 percent, the largest year-on-year drop since September 2009.