U.S. Consumer Sentiment Slips Near Record Low as Cost-of-Living Frustration Mounts
The University of Michigan's Consumer Sentiment Index fell to 46.3 in early October, near May's record low, as rising energy prices and borrowing costs squeezed households weeks before the midterms.
WASHINGTON — U.S. consumer sentiment fell further in early October, sinking near its record low as households reported mounting frustration with the rising cost of living, the University of Michigan’s closely watched survey showed Friday.
The preliminary Consumer Sentiment Index dropped to 46.3 from 48.1 in September, the third straight monthly decline, pushing sentiment close to the record low set in May. The reading came in below the 47.8 economists polled by Reuters had expected. The survey’s measure of current economic conditions plunged to an all-time low of 44.7, down from 50.9 in September, as buying conditions for durable goods deteriorated sharply.
Inflation expectations edged higher as well. Consumers said they expect prices to rise 4.7% over the next year, up from 4.6% in September, while longer-run expectations ticked up to 3.5% from 3.4%.
The pain is concentrated at the bottom
The sharpest declines came among lower-income consumers, households with smaller stock portfolios and political independents, according to the survey. There was a slight uptick in sentiment among both Democrats and Republicans, but it remained considerably lower than in January, the survey found.
Reuters reported that the rising cost of living tied to the Middle East conflict has soured households’ views of the economy, with higher energy prices feeding inflation and prompting the Federal Reserve to raise interest rates in September for the first time in three years. “Frustration over cost-of-living continues to mount,” survey director Joanne Hsu said, according to the survey’s release. Plante Moran Financial Advisors chief investment officer Jim Baird said consumers across the political spectrum are frustrated with rising prices and feel they are “treading water financially,” adding that it may not show in headline GDP data but “it’s likely to be very apparent as voters cast their ballots in the coming weeks.”
Wall Street versus Main Street
The gloomy reading lands less than a month before the November 3 midterm elections that will decide control of Congress, and Reuters reported President Donald Trump’s approval rating is at the lowest of his political career amid anxiety over his handling of the economy.
Yet spending is holding up, because the economy’s burdens and benefits are increasingly split. The survey and economists note that higher-income households, buoyed by stock markets near records, are carrying consumer spending while lower-income families pull back: just under a third of consumers said they would spend as usual on items with large price increases, while 54% said they would cut back and about 16% said they would stop buying those items altogether. “As long as equity markets hold up, spending can continue,” ING chief international economist James Knightley said, buying time for the energy situation to improve — but warning a stock market correction would change the picture quickly.
Reporting based on coverage by Reuters (via SRN News) and Trading Economics.
