Shoppers are seen in a Kroger supermarket on October 14, 2022, in Atlanta, Georgia.
Elijah Newelage | AFP | beautiful pictures
Higher interest rates, recession risk and persistently high prices make consumers less confident about the current state of the economy and where things are headed, according to a closely watched sentiment gauge. announced on Friday.
The University of Michigan Consumer Survey posted an index of 54.7 for November, down 8.7% from the previous month’s 59.9. That’s a far cry from the Dow Jones estimate, which expected the number to be little changed at 59.5.
Along with that result, the current economic conditions index fell 11.9% to 57.8. The consumer expectations index, which looks at where respondents see things going in six months, fell 6.2% to 52.7.
On a year-over-year basis, the headline index fell 18.8%, while the current conditions gauge fell 21.5% and the future expectations gauge fell 17%.
The University of Michigan’s announcement comes a day after the Bureau of Labor Statistics reported that Consumer price index increased by 0.4% in October, lower than the estimate of 0.6%. That news kicked off a frenzied rally on Wall Street, where sentiment mounted that the Federal Reserve could slow the pace of rate hikes as inflation shows signs of slowing.
“Currently, both inflation and higher borrowing costs are squeezing household spending,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors. “For low-income households in particular, higher prices for essentials limit discretionary spending, limit savings, and contribute to increased credit card debt.”
The survey noted a specific decline in spending sentiment on durable goods – big-ticket items such as televisions, kitchen appliances and motor vehicles. That group’s index fell 21% as consumers wary of rising borrowing rates and soaring prices.
Purchases of durable goods have been falling since mid-2021, falling over the past two quarters after a boom in the early days of the Covid pandemic.
Baird added: “The better news on October inflation did not arrive in time to boost sentiment. “The economy may not be in a recession, but for households struggling under the weight of higher prices, it’s certainly amusing for a lot of people.”
Inflation expectations edged higher for the month although October’s CPI showed prices year-on-year increased by 7.7%, compared with 8.2% in the previous month.
The one-year inflation outlook rose to 5.1%, the highest since July, while the five-year gauge rose to 3%, the highest since June. Those numbers have remained in a narrow range for most of the year, starting in 2022 at 4.9% and 3.1% respectively.
But those are historically high terms and until the Fed has benchmark interest rate hike up 3.75 percentage points since March. Friday’s survey showed consumers, whose spending accounts for 68% of US GDP, are cautious as they head into the key holiday shopping season.
“Earlier this year, consumers tried to stay calm as gas prices peaked above $5 a gallon,” wrote Paul Ashworth, chief North American economist at Capital Economics. “But it will be harder for them to turn down high interest rates given that household savings are already unusually low.”
The sentiment index hit historic lows in June as concerns grew that the US was or is falling into a recession. GDP increased at a rate of 2.6% annual rate in the third quarter, helping to ease some worries about a contraction after the first two quarters of negative results, but many economists still predict the United States will slip into a recession in 2023.
