Consumer confidence drops as gas prices rise

Consumer confidence fell more than expected in February as gas prices have been steadily climbing since the holidays. 

After reaching the highest level in nearly a year last month, a preliminary index of consumer sentiment fell to 72.5 percent from 75 percent in January, the best showing since February 2011, according to Friday's report released by Thomson Reuters/University of Michigan.

After leveling off at the end of the year, gas prices have been nipping at consumers' post-holiday budgets — prices are up on average by nearly 25 cents. 

The battle over extending the payroll tax and unemployment benefits through the end of the year probably isn't helping confidence much either. 

Conferees are trying to hammer out a 10-month deal but haven't made much progress with only three weeks to go before the tax cut and federal jobless benefits expire. 

Meanwhile, the labor market continues to show signs of improvement despite persistently high levels of unemployment. The economy added 243,000 jobs in January and the unemployment rate dropped to 8.3 percent. Job growth has been steady since late summer. 

But the job market needs to continue showing signs of healing for consumers to pick up their spending, a factor that accounts for 70 percent of economic activity. 

In the five years before the recession started in December 2007, the index averaged 89 percent. 

The survey’s index of consumer expectations for six months from now, a gauge that helps determine whether consumers will spend, also fell this month, dropping 68 percent from 69.1 percent in January, the best showing since May. 

The index that shows what consumers think about their current finances and whether they are ready to buy big-ticket items like cars, dropped to 79.6 percent from 84.2 percent in January.