Shoppers are seen at a Kroger supermarket in Atlanta, Georgia on October 14, 2022.
Elijah Nouvellage | AFP | Getty Images
Rising interest rates, a possible recession and persistently high prices have left consumers fairly confident about the current state of the economy and where things are headed, according to a carefully monitored sentiment gauge released on Friday. I am losing
of University of Michigan Consumer Research recorded 54.7 in November, down 8.7% from 59.9 the previous month. This was well off the Dow Jones estimate, which predicted little change at 59.5.
Along with this, the current economic situation index fell by 11.9% to 57.8. The Consumer Expectations Index, which measures where respondents think things are headed in six months, fell 6.2% to 52.7.
On an annual basis, the Headlines Index reading fell 18.8%, while the current situation measure fell 21.5% and the future expectations measure fell 17%.
The University of Michigan’s announcement comes a day after the Bureau of Labor Statistics reported that the consumer price index rose 0.4% in October, below estimates of 0.6%. The news sparked a sharp backlash on Wall Street, where sentiment mounted that the Federal Reserve could ease the pace of interest rate hikes as inflation showed signs of leveling off.
“For now, inflation and rising borrowing costs are weighing on household spending,” said Jim Baird, chief investment officer at Plant Moran Financial Advisors. If it goes higher, it will limit your discretionary spending, squeeze your savings and increase your credit card debt.”
The survey found that views on spending on big-ticket durables such as TVs, kitchen appliances and cars are skewed in one direction. The group’s index fell 21% as consumers wary of higher borrowing rates and rising prices.
Durable goods purchases have been trending downward since mid-2021, declining in the last two quarters after an early explosion in the Covid pandemic.
“October’s good news on inflation didn’t come in time to boost sentiment, which had unexpectedly fallen,” Baird said. For those in the household, many certainly feel that way.”
Inflation expectations edged up from 8.2% the previous month, even though the October CPI rose 7.7% y/y.
The 1-year inflation outlook rose to 5.1%, the highest since July. These measures remain in narrow ranges throughout the year, at 4.9% and 3.1% respectively from 2022.
But it’s also historically high, coming from the Fed’s 3.75% hike in its benchmark rate since March. Consumers, who spend 68% of U.S. GDP, are cautious ahead of the all-important holiday shopping season, according to Friday’s survey.
“Consumers were somehow holding their heads earlier this year when gasoline prices peaked at well over $5 a gallon,” said Paul Ashworth, chief North American economist at Capital Economics. “But it will be difficult for them to fend off high interest rates, given that household savings rates are already exceptionally low.”
Sentiment reached a historic low in June amid growing fears that the US is already in, or headed for, a recession. GDP rose at an annualized pace of 2.6% in the third quarter, helping to assuage fears of a contraction after negative numbers in the first two quarters, but many economists still believe the US will grow by 2023. We expect a recession in 2019.
