While the uncertainty of the government shutdown is now more than a week behind us, consumer outlook on the economy has shown little improvement, per the latest index of Consumer Sentiment from the University of Michigan.
In the latest index, consumer sentiment was reported at a near record low of 51; for reference, 100 is the “normalized” rating on the index. A number rating below that indicates below average consumer sentiment relative to historical averages.
As the university’s Surveys of Consumers Director Joanne Hsu noted in a statement, this index is slightly higher than the preliminary November sentiment of 50.3, but “consumers remain frustrated about the persistence of high prices and weakening incomes.”
“By the end of the month, sentiment for consumers with the largest stock holdings lost the gains seen at the preliminary reading. This group’s sentiment dropped about 2 index points from October, likely a consequence of the stock market declines seen over the past two weeks,” Hsu said, noting another change since the preliminary index.
While the latest inflation data has been held up by the shutdown of the government and agencies collecting the data, the most recent Personal Consumption Expenditure and Consumer Price indices did show annual inflation between 2.7-3%.
The latest jobs report from the Bureau of Labor Statistics found unemployment edged slightly higher in November, while revisions to earlier reports found job growth was weaker than previously reported during the summer. Higher unemployment is another factor to consider in consumers’ dour view on the state of the economy.
Christopher Waller, a member of the Federal Reserve Board of Governors, recently cited the latest showings of the UMich Consumer Sentiment index as one reason he intends to vote for an interest rate cut at the December Federal Open Market Committee (FOMC) meeting. According to Waller, the recent trend in consumer sentiment echoes previous readings seen before economic recessions.
The November consumer sentiment is a 2.6 point drop from October readings of 53.6, and a noticeable drop year-over-year; in November 2024, sentiment was 71.8, a reading that is already below the historical average (benchmarked, again, at 100).
The Current Economic Conditions index, showing consumers’ views on their current financial situation, showed a 51.1 reading, down from 58.6 in October and from 63.9 in November 2024. The Index of Consumer Expectations also showed a 52 point reading, up from 50.3 in October but down from 76.9 in November 2024.
Inflation expectations moved down slightly month-over-month from 4.6% to 4.5%, while “long-run” inflation expectations went from 3.9% in October to 3.4% now, slightly over the January reading of 3.2%. According to Hsu: “Despite these improvements in the future trajectory of inflation, consumers continue to report that their personal finances now are weighed down by the present state of high prices.”
For the full consumer sentiment index, click here.
