Consumer’s economic expectations remain muted for another month as the Iran War continues to hold the economy back, according to the latest data from the University of Michigan.
University of Michigan’s latest Consumer Sentiment Index found that sentiment fell only 0.1 points in October, shifting ever so slightly from 48.1 in September to 48 in October. The final October reading was an improvement from the preliminary data earlier in the month that forecast a 1.8 point-drop to a five-month low of 46.3.
However, despite the lack of a significant fall, October’s reading closes in on a 74-year low in the survey’s history.
Notably, Surveys of Consumers Director Joanne Hsu pointed out that sentiment is “now 10% below a year ago and 15% less than February, just prior to the Iran conflict.”
The Index of Current Economic Conditions fell 8.3% month-over-month to 46.7, down 20.3% year-over-year. Hsu explained that the decline in this index was “driven entirely by buying conditions for durables, which plunged 18% on the basis of higher interest rates and rising concerns about the affordability of such purchases.”
“Purchasing power continues to dominate consumer views of the economy,” she continued.
The Index of Consumer Expectations actually saw a month-over-month improvement of 5.4% to 48.8, down only 3% year-over-year.
Hsu noted that year-ahead business conditions saw a 14% improvement, but “they stand 16% less than last October’s read.”
Inflation expectations for the year ahead saw slight upward momentum, growing from 4.6% in September to 4.7% in October.
“The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings,” Hsu stated.
As for long-run inflation expectations, October’s reading saw a slight movement as well to 3.5% (up from 3.4% in September). Hsu noted that this was “notably higher” than the 2024 range of 2.8% to 3.2%.
Hsu also called out that “inflation expectations over both time horizons increased for the second straight month to their highest readings since May.”
