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Economic Report: U.S. consumer sentiment slips to near decade lows as confidence in Biden policies ‘significantly’ declines

The numbers: The University of Michigan’s gauge of consumer sentiment fell to a preliminary October reading of 71.4 from a final September reading of 72.8. Economists polled by the Wall Street Journal expected a reading of 73.

Key details: A gauge of consumer’s views of current conditions fell to 77.9 in October from 80.1 in September, while an indicator of expectations slipped to 67.2 from 68.1 in September.

Household inflation expectations for the next 5 years fell slightly to 2.8%, above its pre-pandemic level of 2.3%. Expectations for 1-year inflation edged up 4.8% from 4.6% in September.

Big picture: While consumer sentiment remains above the roughly 10-year low seen in August, Americans remain wary of the impact of the ongoing COVID-19 pandemic and persistently high inflation.

What UMich said: “Consumer sentiment has remained for the past three months at the lows first recorded in response to last year’s shutdown of the economy,” wrote Richard Curtin, chief economist for University of Michigan’s Survey of Consumers. “The delta variant, supply chain shortages, and reduced labor force participation rates will continue to dim the pace of consumer spending into 2022.”

“There is another, less tangible factor that has contributed to the slump in optimism: confidence in government economic policies has significantly declined during the past six months,” he added. “When asked about their confidence in economic policies, favorable evaluations fell to 19% in early October from Biden’s honeymoon high of 31% in April, while unfavorable policy evaluations rose to 48% in early October from 32% in April.” 

What outside economists said: “We’re assuming that the positive impact of the drop in Covid cases has been offset by surging energy prices, but we hope the opposite story will play out in November, assuming Covid cases continue to fall rapidly,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note to clients. “Inflation expectations rose two tenths to a new cycle high of 4.8% on a one-year horizon, but the 5-to-10-year expectation dipped by two tenths, to 2.8%. The latter first reached its current level back in March, so the charitable interpretation of the data is that people don’t like the current inflation spike, but they expect much of it to fade.”

Market reaction: Equity indexes held to gains following the report, with the Dow Jones Industrial Average
DJIA,
+0.85%

rising about 1% and the S&P 500
SPX,
+0.66%

gaining 0.7%.

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