US Consumer Sentiment Falls to Six-Month Low on Inflation Fears
University of Michigan index declines for a fourth straight month, signaling potential slowdown in spending as long-term inflation fears hit a decade high.
A key gauge of U.S. consumer sentiment has fallen to its lowest level in six months, weighed down by renewed anxiety over the rising cost of living and the burden of high interest rates.
The University of Michigan’s final consumer sentiment index for November dropped to 61.3, a notable decline from October's 63.8 and the fourth consecutive monthly decrease. The reading indicates a growing pessimism among American households that could foreshadow weaker spending during the critical holiday shopping season.
The survey revealed that consumers’ inflation expectations are a primary driver of the souring mood. Americans now expect inflation to be 4.5% over the next year, up from 4.2% a month prior. More significantly, long-run inflation expectations rose to 3.2%, the highest level since 2011, suggesting consumers are losing confidence that price pressures will be brought under control swiftly.
"The decline in sentiment was driven by a worsening of attitudes on a variety of fronts," said Joanne Hsu, the director of the Surveys of Consumers at the University of Michigan. "Consumers are bracing for a slowdown in the economy ahead, and their views of their own finances have also softened."
High borrowing costs are also taking a toll. The survey noted that buying conditions for big-ticket items like homes, vehicles, and major appliances deteriorated sharply, with consumers frequently citing high interest rates as a reason to postpone large purchases. This sentiment stands in contrast to some other recent economic signals that have shown resilience. Recent data indicated that U.S. business activity has accelerated, and some retailers, like Ross Stores, have posted strong earnings.
The persistent inflation concerns come even as official government data shows some moderation. The latest Consumer Price Index data from the Bureau of Labor Statistics showed that inflation has cooled from its peaks, yet remains above the Federal Reserve's 2% target. The disconnect between the official data and consumer sentiment highlights the impact of cumulative price increases on household budgets.
This weakening confidence presents a complex picture for the Federal Reserve. While the central bank may see cooling consumer demand as a sign that its aggressive interest rate hikes are successfully taming the economy, the entrenchment of long-term inflation expectations is a significant concern. Fed officials have stressed the importance of anchoring these expectations to prevent a self-fulfilling cycle of rising prices and wages.
As retailers head into the year's busiest period, the decline in sentiment serves as a warning sign. While consumer balance sheets have remained generally healthy, the erosion of confidence could lead households to pull back on discretionary spending, posing a significant headwind for economic growth in the final quarter of the year.