University of Michigan Index Shows US Consumer Sentiment Fell

Americans’ confidence in the economy fell to a preliminary index reading of 46.3 in October, dropping from 48.1 the previous month, new data showed. If the lower-than-expected reading holds when final data is released later in the month, it would mark the second-lowest level recorded in the 74-year history of the University of Michigan consumer sentiment survey.

Consumer Sentiment Slumps Past Historic Lows

The survey, which dates back to 1952, places current sentiment below levels recorded during the 1970s oil crisis, the Vietnam War, 9/11, the Great Recession, the Covid-19 pandemic, and the subsequent inflation surge. According to data provided by cnn.com, five of the lowest-ever readings for the index have occurred within the past six months, with the record low set in May.

Joanne Hsu, director of the university’s Surveys of Consumers, noted in a statement that frustration over the cost of living continues to mount. Consumers across the political spectrum believe the trajectory of the economy has weakened since the beginning of the year.

Inflation and Rising Costs Drive Negative Outlook

Shoppers face a high cost-of-living environment where inflation continues to run above normal levels. Retail regular gasoline prices remain high across the United States, averaging roughly $4.37 a gallon nationally, according to cnn.com. Gasoline prices have soared higher in recent months, exacerbated by the war in Iran.

Borrowing costs also increased in September when the Federal Reserve raised interest rates for the first time in three years. The overall consumer sentiment index was dragged lower primarily by negative feelings regarding the current economic situation, which tumbled 12.2% from September to hit an all-time low of 44.7, cnn.com reported.

Divergence Between Spending and Sentiment in a K-Shaped Economy

The persistently low sentiment figures appear counterintuitive when compared to standard economic performance metrics. James Knightley, chief international economist at ING, attributed this breakdown to a K-shaped economy narrative where high-income households drive consumer spending, cnn.com reported.

Federal Reserve data cited by cnn.com shows that the top 20% of households, defined as those with annual incomes of $155,000 or more, hold more than 70% of American wealth and account for 40% of all spending. Knightley warned that a stock market correction combined with existing financial stress elsewhere could undermine the broader growth story.

Purchasing Intentions Fall Across Major Categories

Consumers surveyed by the university expressed deep reluctance regarding major purchases, which serve as key drivers of economic activity. According to cnn.com, 87% of respondents consider it a bad time to buy a home, 78% view it as a bad time to buy a vehicle, and 73% believe it is a bad time to purchase household appliances.

Declines in sentiment were particularly pronounced among lower-income consumers and individuals with little exposure to the stock market. Hsu stated that a drop in sentiment among respondents identifying as independents more than offset slight increases observed among Democrats and Republicans.

Midterm Elections and Final Data Release Approaching

The weak economic readings arrive immediately preceding the midterm elections. Knightley noted that the persistently downbeat outlook does not bode well for Republicans as the election approaches, cnn.com reported, recalling that similar voter frustration over inflation helped Republicans take control in the previous election cycle.

The University of Michigan is scheduled to release the final consumer sentiment data later in the month, which will confirm whether the preliminary index reading of 46.3 holds.