Consumer Sentiment Keeps Dropping. It Reached a Four Month Low In Late September.
Consumer sentiment kept dropping in late September, reaching the lowest figure in four months, according to new figures.
The University of Michigan’s Survey of Consumers showed the figure standing at 48.1, compared to 51.7 in August and 55.1 last September. It is a 7% and 12.7% drop for the month and the year, respectively.
Joanne Hsu, the survey director, noted that the latest figure is down 15% compared to January. “Views of current and year-ahead expected personal finances both weakened about 10% this month, with concerns over high prices continuing to climb,” Hsu said.
She went on to detail that buying conditions for durables “improved a bit, in part due to a perception that completing such purchases now would help consumers avoid higher prices in the future.”
However, the “short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole.”
The report also shows “broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year.” Sentiment among Republicans, Hsu noted, is 20% lower than at the beginning of the year, compared to a 13% drop for Democrats.
As for inflation expectations for the next year, they jumped 0.6 percentage points, now clocking in at 4.6 percent as energy prices continue to soar as a result of the war in Iran.
“The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings. Long-run inflation expectations ticked up to 3.4%, ending three consecutive months at 3.3%. These expectations remain higher than their 2024 range of 2.8% to 3.2%,” Hsu concluded.
Markets are also expecting the Federal Reserve to continue hiking interest rates to address rising prices.
Traders are now pricing in about a two-thirds probability that the Fed will raise rates at its Oct. 27-28 meeting, up from roughly 53% earlier, according to the CME Group’s FedWatch tool.
The shift followed stronger readings from the manufacturing and services sectors as well as comments from Federal Reserve Governor Michael Barr, who said further policy adjustments were likely to be needed.
Inflation pressures have also spread beyond energy. St. Louis Fed President Alberto Musalem said earlier this week that strong demand and supply pressures were keeping inflation elevated, with businesses reporting higher costs for fuel, raw materials, transportation, insurance and skilled labor.
The Fed raised its benchmark rate by 25 basis points last week to a target range of 3.75% to 4%, its first increase in more than three years. Policymakers’ projections released with the decision showed that 16 of 18 officials expected at least one additional quarter-point increase before the end of 2026.
