Persistent cost-of-living challenges continue to weigh on U.S. consumer sentiment, according to the University of Michigan.
Various surveys show that renewed price pressures this year, driven mainly by the war in Iran, have fueled Americans’ downbeat views of current economic conditions.
The University of Michigan’s final October Consumer Sentiment Index was the second lowest on record at 48, down more than 10 percent from a year ago. It was also down 15 percent prior to the Middle East conflict.
“Purchasing power continues to dominate consumer views of the economy,” Joanne Hsu, the university’s director of consumer surveys, said in a statement.
Hsu noted that the index for current economic conditions declined about 8 percent—from 50.9 in September to 46.7 this month—driven by higher interest rates and rising affordability concerns.
The inflation outlook remained elevated, with the one-year forecast ticking up to 4.7 percent from 4.6 percent. This is firmly above February’s 3.4 percent level.
Long-run inflation expectations also edged up, from 3.4 percent to 3.5 percent.
“Inflation expectations over both time horizons increased for the second straight month to their highest readings since May,” she said.
The Conference Board will release the next batch of consumer readings, including the October Consumer Confidence Index, on Oct. 27.
Elevated energy prices remain a sore point for the economy and continue to prevent the annual inflation rate from returning to the Federal Reserve’s 2 percent target.
As of Oct. 23, the national average for a gallon of gasoline was $4.2926, according to AAA. This is down almost 20 cents from a month ago, but it is up more than $1.20 from last year.
Diesel remained above $6 per gallon.
The Fed raised interest rates last month for the first time since July 2023, as monetary policymakers took out insurance to prevent the oil-price shock from filtering through the broader economy.
Officials will gather again next week. Investors widely expect the central bank to keep the benchmark federal funds rate unchanged in the 3.75 percent to 4 percent target range. Futures markets instead anticipate a quarter-point rate hike in December, according to the CME FedWatch Tool.
The U.S. stock market fell for the second straight day.
On Oct. 22, tech stocks tanked on worries about artificial intelligence (AI) spending, prompting investors to move into blue chips and Treasury bonds.
A day later, the blue-chip Dow Jones Industrial Average fell about 500 points, or 1 percent. The tech-heavy Nasdaq Composite Index and the broad-market S&P 500 were little changed.
Divergence
The University of Michigan also reported a divergence in sentiment between political parties and in stock wealth.
Since the start of the year, the share of Republicans citing high prices as a drag on their finances surged about 50 percentage points, higher than Democrats or independents.
With President Donald Trump’s approval of the economy underwater—a new Morning Consult poll found 41 percent support the president’s handling of the economy—this could spell bad news for the GOP heading into the midterms.
Increases were greater among non-stockholders and those in the lowest stock-wealth tercile than among individuals in the middle and top terciles.
Economists have often discussed a K-shaped economy, meaning the top is handling current economic conditions better, while the bottom is struggling to keep up.
The numbers have been mixed lately, especially on consumer spending.
Despite gloomy economic assessments, shoppers are still opening their wallets, highlighting the gap between what consumers say and what they do.
“We have documented the disconnect that has emerged between sentiment readings, particularly the University of Michigan, and consumer spending,” Deutsche Bank economists said in a note emailed to The Epoch Times.
“Similar disconnects have emerged across other measures of consumer confidence and economic data.”
In its most recent GDPNow Model, the Atlanta Fed estimates that consumer spending will account for more than 70 percent of third-quarter growth. Business investment and changes in private inventories follow.
September’s retail sales data suggested shoppers were more cautious.
Retail sales blew past economists’ expectations, but pump spending drove the rise. Stripping out gas and automotive dealerships, transactions rose just 0.2 percent.
