US Consumer Sentiment Hits Five-Month Low on Inflation Fears
University of Michigan index falls to 53.6, signaling potential headwinds for consumer spending and the broader economy.
A key gauge of U.S. consumer confidence fell to its lowest level in five months in October, as persistent inflation and concerns over a softening labor market weighed on American households.
The final October reading of the University of Michigan’s consumer sentiment index registered 53.6, a 2.7% decline from September and below the preliminary estimate of 55.0. The drop underscores the financial pressure facing consumers, whose spending accounts for roughly two-thirds of U.S. economic activity.
The survey’s director noted that consumers expressed heightened concerns about high prices and weakening job prospects. This sentiment reflects a challenging economic environment where, despite cooling from its peak, inflation remained elevated at 3% in September, driven in part by higher energy costs.
This erosion in confidence comes at a critical time for the U.S. economy, which is navigating the crosscurrents of slowing growth and the Federal Reserve’s monetary policy. The data suggests potential weakness in consumer spending, a crucial driver of growth, heading into the vital holiday shopping season.
“The decline in sentiment is a clear signal that household budgets are stretched,” said a senior economist at a major financial institution. “While spending has remained resilient, this report serves as a warning that consumers are becoming more cautious.”
The report creates a complex picture for the Federal Reserve. The central bank, which initiated a 25-basis-point interest rate cut in September to a range of 4.00%-4.25%, is balancing its fight against inflation with the need to avoid tipping the economy into a deep recession. Weakening consumer demand could argue for a more dovish policy stance, but with inflation still above the Fed’s 2% target, policymakers remain in a difficult position.
Market reaction to the report was cautious, with investors weighing the implications of a potential economic slowdown. The data adds to a series of mixed economic signals, including projections for U.S. economic growth to slow to 1.8% in 2025, according to economists at Comerica.
Looking ahead, both the Federal Reserve and Wall Street will be closely monitoring upcoming data on inflation and employment to gauge whether the consumer pullback seen in the University of Michigan survey translates into a broader economic downturn.