The much anticipated latest reading on consumer confidence, which was issued shortly after today’s market opening, was far worse than economists were expecting.  Indeed, the Consumer Confidence Index, a monthly survey based on a probability design random sample conducted by The Conference Board, fell sharply in March after improving in February.

Specifically, the Consumer Confidence Index fell from 68.0 in February to 59.7 in March—economists had expected a decline to 67.1. This latest reading is disappointing, as the consumer accounts for the largest portion of the nation’s economic output. The index is closely watched by economists because it provides a monthly gauge of how Americans are feeling about their jobs, incomes and other essential issues. In the latest report, those claiming business conditions are “good” fell to 16.0% from 17.6% in February, while those claiming business conditions are “bad” rose to 29.3% from 28.2%.  

According to Lynn Franco, Director of The Conference Board Consumer Research Group, “The loss of confidence, particularly expectations, mirrors the losses experienced this past December and January. The recent sequester has created uncertainty regarding the economic outlook and as a result, consumers are less confident.”  Consumers are once again pessimistic about the short-term. The latest data raises concerns about the consumers’ ability and willingness to spend in coming months, especially on big-ticket items such as vacations, automobiles, and electronic devices. Consumers’ appraisal of current conditions declined in March. According to the survey, those expecting business conditions to improve over the next six months decreased to 14.4% from 18.0%, while those anticipating business conditions to worsen increased to 18.3% from 16.6%.

Meantime, investors should monitor closely the latest data on both producer (wholesale) and consumer pricing, which rose 0.7% on both levels in February. Our sense is that if inflationary pressures were to continue to rise, it could have a negative effect as well on the psyche of the consumer, which by the looks of this current reading on consumer confidence is a bit more fragile than it has been in several months.

All in all, the latest consumer assessment was dour and raises the question of how much the consumer will be willing to spend in the near term. Anxiety about $85 billion in across-the-board government spending cuts that took effect March 1st is likely behind the weakening confidence among Americans. Investors should note that the latest data on personal income and spending, which will provide a further assessment about individuals’ spending habits, is due out this Friday.