US Consumer Sentiment Revised Lower

The University of Michigan's consumer sentiment for the US fell to 98.6 in October of 2018 from a preliminary estimate of 99 and 100.1 in September. The decline was due to less favorable current economic conditions and higher inflationary pressures.

The current economic conditions sub-index declined to 113.1 from a preliminary of 114.4 and 115.2 in September. In contrast, the gauge measuring consumer expectations was revised slightly higher to 89.3 from a preliminary of 89.1 but below 90.5 in the previous month. Inflation expectations for the year ahead were revised higher to 2.9 percent from a preliminary of 2.8 percent and 2.7 percent in September and the 5-year outlook for inflation to 2.4 percent from 2.3 percent (2.5 percent in September). 

The Consumer Sentiment Index has been higher thus far in 2018 (98.5) than in any prior year since 2000, which was the last year of the longest expansion since the mid-1800s. Importantly, stock price declines, rising inflation and interest rates, and the negative mid-term election campaigns, have not acted to undermine consumer confidence. Needless to say, consumers are not immune to these negative factors. The data only indicate that the tipping point toward escalating pessimism has not been reached. This resilience was primarily due to the prevailing belief that the economy would produce robust job growth during the year ahead, even if overall wage growth remained dismal. Consumers now place a higher value on job security compared with wage growth due to job losses in the Great Recession as well as the aging of the labor force. 

Consumers' reports have become more volatile and have exceeded actual job growth in recent years, whereas before 1980 consumers regularly underestimated the strength in the labor market. This may reflect the heightened attention accorded to every waver in job news in the current environment, while before 1980, job growth was the accepted norm and consumers were more sensitive to real wage growth. The pace of growth in real personal consumption can be expected to average 2.6% during late 2018 and into the first half of 2019. Increases in home and vehicle prices, rising interest rates, and decreases in the pace of growth in inflation-adjusted incomes have especially dimmed prospects for home and vehicle sales. 

US Consumer Sentiment Revised Lower

University of Michigan | Joana Taborda |
10/26/2018 2:10:40 PM