This month, consumer sentiment tumbled more than expected as persistent inflation and higher interest rates make life less affordable.
The University of Michigan Consumer Sentiment Index plunged to 63 in October, down from more than 68 in September, according to preliminary numbers released Friday. The drop represents a weighty 7.5% decline from last month but a 5.2% increase from a year ago. This month's index was well below consensus estimates among economists of just over 67. Sentiment is now the lowest it has been since May.
HIGHER SHELTER AND ENERGY PRICES PROPPED UP INFLATION AT 3.7% IN SEPTEMBER
Joanne Hsu, director of the survey, said in a Friday statement that the numbers, in part, are a reflection of the continued burden that higher prices are having on consumers.
“Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%,” she said. “However, long-run expected business conditions are little changed, suggesting that consumers believe the current worsening in economic conditions will not persist.”
The news is another setback for President Joe Biden, whose administration is working to overcome negative economic approval ratings.
The data show that despite some remarkably strong spots in the economy, such as low unemployment and resilient gross domestic product growth, consumers don’t feel satisfied with the current economic landscape.
Inflation is still tearing through the country, although the pace of the annual price increases has weakened.
The headline number for the consumer price index punched in at 3.7% nationwide last month, about the same as the month before. On a month-to-month basis, inflation rose 0.4%, slightly higher than projected.
Inflation, as measured by the producer price index, rose by two-tenths of a percentage point to 2.2% for the year ending in September, the third such month of increases.
Because of the high inflation, the Federal Reserve has had to hike interest rates to levels not seen since the turn of the 21st century. The federal funds rate is now at 5.25% to 5.50%, which has made things such as taking on credit card debt and buying a home much more challenging for consumers.
As a result of the Fed’s higher interest rate target, mortgage rates have soared, causing the housing market to take a hit.
As of Friday, the average rate on a 30-year fixed-rate mortgage has soared to 7.69%, according to Mortgage News Daily. Earlier this month, mortgage rates reached the highest they have been since 2000 but have fallen off a bit since then.
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Still, despite the lower consumer sentiment, people who want to work have the ability to find jobs, a positive sign for the economy.
The labor market added 336,000 jobs in September, a number that was much better than economists had expected. Employment gains in July and August were also revised upward by a combined 119,000.