A significant gloom enveloped American households in October as expectations for business conditions plunged and consumers increasingly worried that inflation is hurting their personal finances.
The University of Michigan’s index of consumer sentiment fell to a preliminary October reading of 63 from 68.1 in the prior month.
This is the worst reading since May and much lower than expected. Sentiment had held steady in July and August at a level not seen since last December.
“Consumer sentiment fell back about 7% this October following two consecutive months of very little change. Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%,” said the survey’s director, Joanne Hsu.
The decline was significant in both the gauge of current conditions and expectations for the future. Nearly all demographic groups registered a decline in sentiment, reflecting widespread unhappiness with still high inflation.
Consumers now expect inflation to run at 3.8 percent a year from now, up from 3.2 percent last month. That’s the highest reading since May 2023 and well above the pre-pandemic norm of 2.3 percent to three percent.
The long-run expectations were little changed, climbing to three percent from 2.8 percent. The long-run gauge has remained in the narrow range of 2.9 percent to three percent in 25 of the last 27 months. Prepandemic expectations typically ran in the 2.2 percent to 2.6 percent range.
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