Consumer confidence has risen for the third consecutive month, buoyed by expectations of lower interest rates and steady inflation.
According to the University of Michigan’s October Consumer Sentiment Index, confidence ticked up to 70.5, a modest increase from 70.1 in September, marking the index’s highest level since April and a notable recovery from a low point in 2022, when inflation surged post-pandemic.
The report revealed consistent inflation expectations, with consumers anticipating a 2.7% rate in the coming year, while long-term estimates slightly eased to 3% from 3.1%. Improved purchasing conditions for durable goods and increased income optimism also contributed to the sentiment boost, survey director Joanne Hsu noted.
Economic sentiment has diverged somewhat by political affiliation ahead of the election, with confidence rising 8% among Republicans and dropping slightly (1%) among Democrats. Republican optimism aligns with a perceived advantage for former President Donald Trump, while the percentage of consumers expecting a Harris victory dropped from 63% in September to 57% in October. The results reflect heightened interest in economic management as inflation and interest rates have become focal points in the election discourse.
The Federal Reserve’s recent decision to lower interest rates by 0.5% has encouraged consumer optimism.
“Lower rates and increasing consumer sentiment could be the backbone of a year-end economic boost,” conomist Robert Frick of Navy Federal Credit Union stated.
Economic indicators remain largely positive. The labor market is robust, consumer spending is steady, and household incomes are on the rise, particularly for higher earners. However, many lower-income consumers report expecting smaller income gains. The share of consumers citing high interest rates as a purchasing obstacle has also decreased, signaling greater optimism for sectors dependent on consumer financing, such as housing and automotive.
Economic analyst Eric Winograd from AllianceBernstein noted that the economic recovery has particularly benefited individuals with assets like homes and stocks, which have appreciated significantly in recent years. However, he added that inflation remains an unfamiliar challenge for many under 60 who have seen consumer prices rise sharply, which has fueled continued frustration despite overall economic gains.
With the election drawing closer, businesses and investors are closely monitoring the outcome, as it may shape economic policy and strategic decisions in 2025. Markets responded favorably to Friday’s news, with both the Dow Jones Industrial Average and S&P 500 experiencing gains as consumer sentiment and economic data reinforced optimism about the economy’s resilience.
With input from Market Watch, Bloomberg, and US News & World Report.
