NEW YORK Rising prices at the gas pump and in grocery aisles are starting to crimp shoppers outlook.
The Conference Boards Consumer Confidence Index fell sharply from a three-year high in February, reversing five consecutive months of improvement.
The decline raises questions about Americans ability and willingness to spend in coming months.
The index fell to 63.4 from a revised 72.0 in February. Economists expected 65.4, according to FactSet.
The drop was the steepest since the 10.1-point plunge from January 2010 to February 2010, when the U.S. stock market was hammered by worries about Greeces national debt.
Rising food and gasoline prices are starting to take their toll on the consumer psyche, and Japans triple calamity earthquake, tsunami and nuclear disaster has been very unsettling, said Chris Christopher Jr., senior principal economist at HIS Global Insight.
The index measures how Americans feel about business conditions, the job market and the next six months.
It has hovered in a tight range from the high 50s to low 60s over the last year, far below the 90 that indicates a healthy economy. The index hasnt approached that level since the recession began in December 2007.
A housing slump that isnt over and wont be for a while isnt helping.
Home prices are falling in most major U.S. cities, and the average prices in four of them are at their lowest in 11 years, according to Standard & Poors/Case-Shiller report released Tuesday. On Friday, the Commerce Department said new-home sales plunged in February, the third month in a row.
The falling Consumer Confidence Index is in line with Gallup Polls weekly surveys, which have registered a slide in confidence since mid-February.
Economists monitor confidence because consumer spending, including big-ticket items such as housing and health care, accounts for about 70 percent of U.S. economic activity and is critical for a strong rebound.
Consumers inflation expectations rose significantly in March and their income expectations soured, a combination that will likely impact spending decisions, Lynn Franco, director of The Conference Board Consumer Research Center, said in a statement.
Signs of financial strain emerged Monday in Februarys consumer spending report, which showed that most of the 0.7 percent jump in spending went to cover higher gas prices.
The governments February jobs report, released this month, showed companies added more workers in February than in any month in almost a year. Unemployment fell to 8.9 percent, the lowest in almost two years.
But higher oil prices, violence in the Middle East and North Africa and Japans nuclear crisis could frighten U.S. companies out of taking any risks, said Mark Vitner, a senior economist with Wells Fargo.
As for consumer spending, analysts say March has been uneven after strong holiday spending continued into January and February.
Rising prices are showing up in several noticeable ways.
The national average for a gallon of gas hit $3.584 Monday, the highest ever for this time of year, according to AAA, Wright Express and the Oil Price Information Service. Gasoline prices have jumped 25.1 cents in the last month and 78.1 cents from a year ago.
Food prices are expected to increase 3 to 4 percent on average this year, with the steepest increases in dairy, meat and coffee. Clothing retailers are also raising prices as they face soaring costs for labor in China and raw materials like cotton.
The Conference Board survey, conducted by The Nielsen Co., is based on a random survey mailed to 3,000 households March 1-March 16.
Consumer reactions to overseas events like the Japanese earthquake are typically short-lived, Franco said. The quake hit Japan on March 11, five days before the end date of the survey.
Often, consumers reactions to big calamities arent rational.
U.S. Airways Group Inc., which doesnt even fly to Asia, reported bookings were fell than 20 percent on the Friday of the earthquake and stayed there over the next few days. That business already has mostly bounced back.
What really affects confidence more is whats happening in the home front, said Franco. Higher prices for necessities are daily, constant reminders to consumers, she added. There is a sort of diminished sense of purchasing power.
AP Retail Writer Sarah Skidmore in Portland, Ore., contributed to this report.