Consumer Sentiment Holds at 48.0 in October, Second-Lowest on Record, as Independents Turn Gloomier
The University of Michigan's consumer sentiment index edged down to 48.0 in October, the second-lowest reading ever recorded, as rising prices tied to the Middle East conflict weighed on households ahead of the November 3 midterms.
American consumers felt nearly as gloomy in October as they have at any point on record. The University of Michigan’s Surveys of Consumers said its Consumer Sentiment Index slipped to 48.0 this month from a final reading of 48.1 in September, according to a survey released Friday.
The reading is the second-lowest on record, behind only the all-time low of 44.8 set in May, not long after the Iran war began. Economists polled by Reuters had forecast 46.3, which had also been the survey’s preliminary reading for October.
Purchasing power dominates
“Purchasing power continues to dominate consumer views of the economy,” said Joanne Hsu, director of the Surveys of Consumers. “Sentiment is now 10% below a year ago and 15% less than February, just prior to the Iran conflict.”
The decline was led by voters who identify as independents, a group Reuters described as swing voters. Their sentiment score fell to 42.4 from 47.7 in September, just above the record-low 40.6 recorded in May. Scores for Democrats and Republicans improved.
Since January, the share of independents citing high prices as a drag on their personal finances rose 27%, while the figure rose 52% among Republicans and 15% among Democrats, the survey showed.
Inflation expectations stay high
Consumers’ expectations for inflation over the next year edged up to 4.7% from 4.6% in September, and expectations over the next five years rose to 3.5% from 3.4%. Twelve-month expectations have climbed from 3.4% in February, before the U.S.-Israeli war with Iran started.
Hsu wrote that the persistence of elevated inflation expectations since the COVID-19 pandemic poses a risk to the Federal Reserve’s effort to return inflation to its 2% target, a goal unmet for more than five years. Fed officials meet next week and are broadly expected to leave the policy interest rate unchanged at 3.75% to 4.00% after raising it by a quarter percentage point in September.
The survey lands days before the November 3 midterm election, in which control of Congress over the final two years of President Donald Trump’s term will be decided. Reuters reported that polls show Republicans are likely to lose control of the House and possibly the Senate.
Reporting based on coverage by Reuters.
