University of Michigan October Consumer Sentiment Index falls to a five-month low, with the Current Economic Conditions Indicator hitting a historic low

US consumer confidence declined again in early October, as continued inflationary pressure pushed household economic sentiment to the lowest level on record, adding new concerns to the outlook for the US economy.

Preliminary data released by the University of Michigan on Friday shows that the Consumer Sentiment Index fell to 46.3 in October, the lowest since May and below economists’ median forecast of 47.6. The sub-index reflecting current economic conditions plunged from 50.9 in September to 44.7, reaching a record low.

The expectations sub-index edged up from 46.3 in September to 47.3, the first rebound since July, indicating that some consumers’ outlook for the economy has not deteriorated across the board.

Consumers’ inflation expectations for the year ahead edged up slightly from 4.6% in September to 4.7%, significantly higher than February’s 3.4% prior to the Iran conflict, and also higher than all other projections for 2024. Five-to-ten-year inflation expectations rose from 3.4% in September to 3.5%.

Meanwhile, a special survey showed that only about 31% of consumers expect spending to remain at normal levels over the next year, with more than half of respondents saying they plan to cut spending on household items, cars, dining out, and holidays.

High Gasoline Prices and Interest Rates Are Core Causes

Behind the continued decline in consumer confidence, persistently high gasoline prices, rising borrowing costs, and a slowdown in job growth are the main drivers.

High fuel prices have further strained consumers already dissatisfied with rising inflation and living costs. In recent months, overall price increases have continually outpaced wage growth, further squeezing household disposable income.

Consumer assessments of durable goods purchase conditions have dropped to historic lows, mainly due to growing concern over high interest rates. However, consumers’ perceptions of their current financial situation remained steady this month.

Marked Confidence Decline Among Low-Income Groups and Independents

Joanne Hsu, director of the University of Michigan survey, stated in a press release that confidence among low-income consumers and those with smaller stock portfolios plunged significantly this month.

The small rebound in confidence among Democratic and Republican consumers was offset by a decline in sentiment among independents.

Hsu said: “Despite different political stances, consumers of all parties agree the economic outlook has weakened compared to the start of the year.”

The above data covers feedback collected from respondents between September 22 and October 5.

Although confidence indicators have remained weak for most of this year, actual consumer spending has stayed healthy. A stable labor market and strong stock market have supported continued spending on goods and services.