U.S. Consumer Sentiment Hits Five-Month Low

News Summary

Consumer sentiment in the U.S. has declined to its lowest point in five months, falling to 55 in October. This marks the third consecutive month of decrease as households express concerns over rising unemployment and persistent inflation. While spending shows slight resilience, overall sentiment remains significantly below historical averages. The University of Michigan’s survey indicates a growing pessimism among consumers regarding future economic conditions, notably during the recent government shutdown affecting key economic reports.

Consumer sentiment in the U.S. has dropped to its lowest level in five months, falling to 55 in October, down slightly from 55.1 in September. This marks the third consecutive month of decline in consumer sentiment, with October’s reading reflecting a 0.1% decrease compared to the previous month. Economists had predicted a more significant drop, forecasting a sentiment index of 54.2, making the actual decline somewhat less severe than expected.

Despite this marginal decline, numerous economic indicators point to growing worries among consumers. A significant portion of households, 48%, now anticipates that the unemployment rate will rise, a decrease from 53% in September but still indicative of a pessimistic outlook compared to earlier this year. Consumers continue to be concerned about high inflation, with inflation expectations for the next year remaining elevated.

The University of Michigan survey, which gathers this data, conducted its assessment between September 22 and October 6. This timeline coincides with the government’s partial shutdown, which began on October 1. Nonetheless, evidence suggests this shutdown has had a minimal impact on consumer perceptions of the economy thus far. The expected release of the Department of Labor’s monthly jobs report, crucial for understanding employment trends, has been suspended due to the ongoing shutdown.

The sentiment around the economic outlook appears to be worsening. According to survey results, 59% of respondents believe the economy is deteriorating, up from 54% in July. In terms of spending, a report from Bank of America highlighted that credit and debit card spending per household rose by 2% in September, indicating a slight resilience in consumer spending even amidst uncertainty.

On the positive side, the Current Conditions Index, which assesses consumers’ perceptions of current economic situations, improved to 61 in October from 60.4 in September. However, the Expectations Index, which gauges consumers’ outlook for the future, fell to 51.2 from 51.7, underscoring a more cautious sentiment towards future economic conditions.

Regarding inflation predictions, consumers’ expectations of inflation over the next year reduced slightly from 4.7% to 4.6%, while five-year expectations remained unchanged at 3.7%. However, overall, the current sentiment level reflects a significant drop of approximately 34.7% below the historical average since 1978, and it is notably below the average reading from the last quarter of 2024.

The director of the Surveys of Consumers at the University of Michigan noted that consumers perceive minimal changes in their economic outlook compared to the previous month. Current economic uncertainties include sluggish job growth and potential public sector layoffs if government funding is not restored. As a critical forward-looking economic indicator, the consumer sentiment report offers insights into how consumers feel about their financial futures and the economy, especially during the current government shutdown that limits access to other economic data metrics.

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