Consumer Sentiment Takes Dip as Inflation Concerns Outweigh Job Market Optimism

Consumer sentiment in the US unexpectedly fell for the first time in three months, Bloomberg reports, citing the University of Michigan’s preliminary October index, released Friday.

The index dropped to 68.9 from 70.1 in September, a sign that lingering frustration over high living costs is overshadowing positive developments in the job market.

While the report outlines a decline in unemployment expectations, with only 31% of consumers expecting a rise in unemployment in the coming year, the focus remains firmly on inflation. Consumers anticipate prices to climb 2.9% over the next year, marking the first increase in five months. This, coupled with a perceived outpacing of income gains by inflation, has dampened consumer confidence, particularly concerning their current financial situation, which fell to the lowest level since the end of 2022.

“Despite strong labor markets, high prices and inflation remain at the top of consumers’ minds,” noted Joanne Hsu, director of the survey.

However, the report also reflects a glimmer of optimism. Consumers welcomed the Federal Reserve’s recent decision to start lowering borrowing costs, and their views on buying conditions for durable goods improved to a four-month high. Furthermore, concerns about high interest rates for homebuyers fell to a 15-month low.

Despite these positive developments, a majority of consumers still view borrowing costs as excessively high, suggesting further easing is necessary to bolster sales.

The current conditions gauge slipped to 62.7 from 63.3, while the expectations index fell to 72.9 from 74.4 in September.