US Consumer Sentiment Slips in October
The highly regarded University of Michigan’s Consumer Sentiment Index (CSI) slipped in October amid lingering frustration over high prices (the index is issued monthly and is arrived at through interviews with hundreds of random Americans).
The CSI came in at 68.9 compared to 70.1 in September. In simple terms, increased consumer confidence indicates economic growth in which consumers are spending money, indicating higher consumption. Decreasing consumer confidence implies slowing economic growth, and so consumers are likely to decrease their spending. The idea is that the more confident people feel about the economy and their jobs and incomes, the more likely they are to make purchases (necessary for a healthy, strong economy). Declining consumer confidence is a sign of slowing economic growth and may indicate that the economy is headed into trouble.
"While inflation expectations have eased substantially, consumers continue to express frustration over high prices," said Surveys of Consumers Director Joanne Hsu. "Still, long run business conditions lifted to its highest reading in six months, while current and expected personal finances both softened slightly.".
The survey's reading of one-year inflation expectations rose to 2.9% from 2.7% in September. Its five-year inflation outlook dipped to 3.0% from 3.1% in the prior month.
"With the upcoming election on the horizon, some consumers appear to be withholding judgment about the longer-term trajectory of the economy," said Hsu. She added, "Consumers continue to express frustration over high prices. Many consumers appear to be reserving judgement about the economy until after the election.”
Economists are struggling to understand why the index declined while inflation is cooling, gas prices are down, and the Federal Reserve cut its benchmark interest rate in September - trends that should boost sentiment.
Yet Hurricane Helene and Middle East turmoil could have pushed sentiment lower, Bradley Saunders, an economist at Capital Economics, noted. And after falling in anticipation of the Fed's rate cut, mortgage rates have climbed in the past two weeks.
The survey hit a low point in June of 2022 when inflation reached 9.1%. It has since risen by about 40%. But it stubbornly remains below pre-pandemic levels. The drop might indicate a lack of confidence by respondents about what the future may hold.
Yet consumers have kept spending despite their gloomy responses to the survey, aiding the economy. Economic growth likely reached 3,2% in the third quarter, according to the Federal Reserve Bank in Atlanta.