US Consumer Sentiment Holds Near Record Low at 48.0 in October as Price Worries Persist

US consumer sentiment barely moved in October, holding close to the lowest level in the survey’s history as worries over high prices and borrowing costs continued to weigh on households, the University of Michigan reported on Friday. The final Index of Consumer Sentiment came in at 48.0, just one-tenth of a point below September’s final reading of 48.1 and down from 53.6 a year earlier.

The final figure was better than the preliminary October reading of 46.3, which was also the level economists polled by Reuters had forecast. According to Reuters and ABC News, the October result is the second-lowest final reading on record, behind the all-time low of 44.8 set in May.

Purchasing power weighs on consumers

The survey’s Current Economic Conditions index fell to 46.7 from 50.9 in September, while the Index of Consumer Expectations rose to 48.8 from 46.3. Surveys of Consumers director Joanne Hsu said the drop in current conditions was driven entirely by buying conditions for durable goods, which plunged 18%.

“Purchasing power continues to dominate consumer views of the economy,” Hsu said, adding that sentiment is now 10% below a year ago and 15% below February, just before the Iran conflict began.

The university said 85% of consumers view now as a bad time to buy a house, with about 62% blaming high interest rates, up from 47%. Around 69% expect interest rates to rise over the coming year, the highest share since April 2023. The proportion of respondents who spontaneously cited high prices as hurting their finances climbed to 56%, from 45% in January, and gasoline prices were mentioned unprompted by more than 40% of those surveyed.

ABC News, citing AAA, reported that the average US price of a gallon of gasoline stands at US$4.29, roughly 43% higher than when the Iran war began in late February. It also noted that consumer prices rose at an annual rate of 3.7% in September and that employers added 29,000 jobs that month, compared with 162,000 in August.

Inflation expectations edge higher

Year-ahead inflation expectations rose to 4.7% from 4.6% in September, while long-run expectations increased to 3.5% from 3.4%, Reuters reported. Year-ahead expectations stood at 3.4% in February.

In a separate report on inflation expectations, Hsu said consumers broadly expect inflation to accelerate and that the increases this year were not limited to one part of the political spectrum, according to Reuters. Sentiment among political independents fell to 42.4 from 47.7, while readings among Democrats and Republicans improved.

What’s next

Reuters reported that the Federal Reserve is expected to keep its policy rate in the 3.75%-4.00% range at its meeting next week, following a quarter-point hike in September, and that Hsu said persistently elevated expectations pose a risk to the Fed’s 2% inflation goal. ABC News said affordability is a top concern for voters ahead of the midterm elections on November 3.

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