Consumer sentiment in the United States showed resilience in early October, largely holding steady despite ongoing concerns about inflation and the labor market. This stability coincided with the start of a government shutdown, which, at the time of the survey, had not significantly altered consumers’ perceptions of the broader economic landscape. The preliminary University of Michigan consumer sentiment index recorded 55 for October, a slight decrease from September’s reading of 55.1. This figure also surpassed economists’ consensus forecast, which had predicted a more significant drop to 54.2.
However, underlying sentiment reveals continued unease among households. The University of Michigan’s Surveys of Consumers indicated that immediate financial pressures, particularly high prices and worsening job prospects, remain central to consumers’ concerns. While the direct impact of the government shutdown was not yet apparent in survey responses collected between September 22 and October 6, historical data suggests that prolonged federal disruptions can negatively affect consumer outlooks. Economists anticipate that the final October data may show a downward revision if the shutdown continues.
Inflation expectations, though showing slight moderation, continue to pose a challenge. The survey indicated a decrease in consumers’ outlook for inflation over the next year, falling to 4.6% from 4.7% in September. However, expectations for inflation five years out remained unchanged at 3.7%. This persistent elevated outlook for price increases, combined with a negative view of current conditions for purchasing durable goods and pessimism about future personal finances, highlights a cautious consumer environment.
These findings emerge amidst evolving economic indicators. Before the government data blackout, the labor market had shown signs of cooling, with job growth decelerating over the preceding three months. This softening labor market, along with inflation concerns, had prompted the Federal Reserve to resume a policy of easing interest rates in September, lowering its benchmark rate by 25 basis points. Despite continued vigilance on inflation, some economists predict that the Federal Reserve may consider further rate adjustments, although the exact timing and extent remain dependent on ongoing economic data.
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