Key points

  • The preliminary October sentiment index fell to 46.3 from September's final 48.1 reading, missing economists' expectations.
  • The current-conditions measure dropped to a record-low 44.7, with lower-income consumers and smaller investors reporting the steepest decline.
  • Year-ahead inflation expectations rose to 4.7% and long-run expectations increased to 3.5%, both the highest since May.

U.S. consumer sentiment moved closer to a record low in early October as high living costs and borrowing expenses weighed most heavily on households with fewer financial buffers. The University of Michigan's preliminary index fell to 46.3 from September's final reading of 48.1, extending the decline for a third month.

The result was weaker than the 47.8 median forecast in a Reuters poll. It was also 13.6% below the level recorded a year earlier, according to the university's October 9 release. The final October estimate is scheduled for October 23, so the headline reading may still be revised.

Related reporting: US consumer sentiment falls to four-month low as inflation fears rise

Current conditions reached a new low

The survey's current-economic-conditions measure fell to 44.7 from 50.9 in September, the lowest reading in the series. Buying conditions for durable goods deteriorated sharply as consumers confronted elevated prices and financing costs. By contrast, the expectations index improved modestly to 47.3 from 46.3, leaving a split between how households view today's economy and what they anticipate next.

Survey director Joanne Hsu said sentiment dropped steeply among lower-income consumers and people with smaller stock portfolios. Those groups have fewer resources to absorb price increases and receive less benefit from rising equity values. Views improved among respondents identifying as Democrats and Republicans but weakened among independents; the overall economic assessment remained poor across the political spectrum.

Inflation expectations moved higher

Expected inflation over the next year rose to 4.7% from 4.6% in September. The long-run measure increased to 3.5% from 3.4%. Both advanced for a second consecutive month and reached their highest levels since May. The short-term figure also remained well above February's 3.4% reading, before higher energy costs linked to the conflict with Iran intensified pressure on household budgets.

Those expectations matter to the Federal Reserve because persistent beliefs about higher inflation can influence wage demands, pricing decisions and spending. The central bank raised its target rate by a quarter percentage point in September to 3.75%–4.00%, its first increase in three years. Softer job growth and recent inflation data have reduced expectations of another immediate move, but the October survey adds evidence that inflation psychology has not normalized.

Weak mood has not stopped spending

Poor sentiment does not automatically signal an imminent contraction. Reuters noted that higher-income households, supported by resilient stock markets, remain the main engine of consumer spending. A related Michigan report found that 54% of consumers expected to reduce purchases of items with large price increases, while just under one-third planned to maintain their usual spending and about 16% expected to stop buying them.

That divide helps explain why major U.S. stock indexes finished the week higher even as households reported greater strain. It also leaves the outlook unusually dependent on affluent consumers and asset prices. The October release is best read as a warning about uneven financial pressure, not proof that overall spending or economic growth has already turned down.

Sentiment surveys capture perceptions and intended behavior rather than completed purchases, payrolls or output. Their value is in showing where pressure is concentrated and how expectations are changing. Investors and policymakers will therefore compare the final October survey with retail-sales, employment and inflation data before drawing conclusions about the broader economy or the path of interest rates.

Sources

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