Future Consumer Expectations Remained Weak in October | So Good News
By Robert Hughes
The final October results from the University of Michigan Surveys of Consumers show that overall consumer sentiment has changed little since September and remains at a very low level (see first chart). Composite Consumer Concepts it increased to 59.9 in October, from 58.6 in September. The index fell to 50.0 in June, down from 101.0 in February 2020 at the start of the recession. October’s increase was just 1.3 points or 2.2 percent, leaving the index nearly 10 points above a record low. The index remains consistent with past recessions.
The index of economic activity rose to 65.6 against 59.7 in September (see first chart). That’s a 5.9-point or 9.9 percent month-on-month increase. The sector has seen some notable relief from June’s low of 53.8 but is still associated with a recession.
The second component – consumer expectations, one of AIER’s leading indicators – fell 1.8 points to 56.2. The sector index posted a strong hit in August but was unchanged in September and fell slightly in the latest month. The index is still in line with the recession (see previous chart). According to the report, “With the sentiment index only 10 points above the lows reached in June, the recent news of a decline in consumer spending in the third quarter is not surprising.” The report adds, “This month, purchases of fixed assets rose 23% on the back of price cuts and supply constraints. However, business conditions expected for the year ahead worsened by 19%. The range reflects high uncertainty over inflation, policy responses, and global trends.” around the world, and consumer sentiment is aligned with the coming recession.” Furthermore, “While low-income consumers reported the greatest gains across the board, consumers with high levels of stock market and housing wealth showed a significant decline in sentiment, weighed down by the turmoil in these markets. Among high-income consumers In general, any decrease in income or wealth can lead to a return on investment…”
One-year inflation expectations rose in October, rising to 5.0 percent. The jump follows a gradual decline in the five months to September after repeated readings of 5.4 percent in March and April (see second chart).
Five-year inflation expectations rose again, coming in at 2.9 percent in October. Despite the increase, the result is better within 25 years of 2.2 percent to 3.4 percent (see the second chart). The report states, “The median inflation rate rose to 5.0%, with increases in age, income, and education. from July 2021, but since then, expectations have returned to 2.9%. Uncertainty about inflation expectations remains high, indicating that expectations inflation may be volatile in the coming months.
The pessimistic consumer sentiment reflects a combination of trends, with inflation leading the pack. Persistent inflation affects consumer and business decision-making and disrupts economic activity. Overall, risks to the economy remain high due to rising inflation, the Fed’s tightening stance, and continued recession due to Russia’s invasion of Ukraine. As the midterm elections approach, an increase in negative political advertising may also affect consumer sentiment. The economic outlook is still very uncertain. A warning is in order.
Editor’s Notes: The bullet points for this article were selected by the Seeking Alpha editors.