PHOTO: REUTERS/FILE

REUTERS, Washington

US consumer sentiment fell more than expected in March, touching a three-month low, as war in the Middle ​East stoked inflation worries and cast a shadow over the economic outlook.

The decline, reported by the University of Michigan’s Surveys of Consumers on Friday, occurred across political ‌party affiliation and age groups, with large decreases among middle- and higher-income consumers as well as those owning stocks.

The month-long US-Israeli war with Iran has sent global oil prices surging more than 50 percent. Retail gasoline prices have jumped $1 to an average of $3.98 per gallon, data from motorist advocacy group AAA showed, while the S&P 500 index has dropped about 6.7 percent.

Though the correlation between consumer sentiment and spending is weak, rising gasoline prices and falling share ​values, combined with a stagnant labor market, could undercut consumption and hamper economic growth. Higher-income households have led consumer spending, underpinned by robust wealth levels.

“Sentiment hit a record low ​in mid-2022 when inflation was at its highest level in decades, but the economy held up with solid GDP growth and an historically strong labor market,” said Gus Faucher, chief economist at PNC Financial.

“But if the conflict drags on, gasoline prices move even higher in the summer driving season, and stocks continue to falter, consumers ​could throw in the towel and start to pull back on their spending.”

The University of Michigan said its Consumer Sentiment Index dropped to a final reading of 53.3 this month, the lowest ​reading since December, from 55.5 earlier. Economists polled by Reuters had forecast the index would ease to 54.0.

It was at 56.6 in February and is not too far from a record low touched in June 2022. The survey’s short-run economic outlook gauge plunged 14 percent, while a measure of year-ahead expected personal finances sank 10 percent. Declines in long-run expectations were more subdued, the survey showed.

“These patterns suggest that, at this time, consumers may not expect recent ​negative developments to persist far into the future,” said Joanne Hsu, the director of the University of Michigan’s Surveys of Consumers.

“These views are subject to change, however, if the Iran conflict ​becomes protracted or if higher energy prices pass through to overall inflation.”

WILL GASOLINE PRICES OFFSET TAX CUTS?

There are worries that gasoline prices, should they continue to rise, could cut into the fiscal boost from tax cuts ‌ushered in by the One Big Beautiful Bill Act. Economists at JPMorgan estimated that could happen if the national average price rises close to $5 per gallon or more. Prices at the pump in California and Washington state have already topped $5 per gallon.

“As things stand now, the increase in gasoline prices to date is unlikely to fully offset the magnitude of lower taxes,” they wrote in a note.