US consumer sentiment nears lowest point since index began ahead of midterm elections

US consumer sentiment nears lowest point since index began ahead of midterm elections October's reading marked the second-lowest on record after the all-time low of 44.8 set in May - Bookmark - CommentsGo to comments Become an Independent member to bookmark this article Already a member? Log in American household confidence dipped close to a historic low in October, as elevated prices stemming from the Iran war worsened the public's economic outlook ahead of midterm elections. The Consumer Sentiment Index from the University of Michigan's Surveys of Consumers dropped to 48.0 this month, down from a final reading of 48.1 in September. Economists surveyed by Reuters had predicted the index would land at 46.3, which matched the preliminary figure previously reported for October. The October output, released on Friday, represents the second-lowest reading ever recorded, sitting just above the all-time minimum of 44.8 registered in May, not long after the war with Iran began. "Purchasing power continues to dominate consumer views of the economy," said Joanne Hsu, the director of the Surveys of Consumers. "Sentiment is now 10% below a year ago and 15% less than February, just prior to the Iran conflict." These findings correspond with political polling data showing that voters hold a negative opinion of the economy, as well as President Donald Trump's and the Republican Party's handling of economic issues. Millions of American voters have already submitted early ballots for the upcoming November 3 midterm election, which will determine political control of Congress during the remaining two years of Trump's term. Polls indicate Republicans risk losing control of the House of Representatives and potentially the Senate, as Trump's approval rating hits a record low in a Reuters/Ipsos poll following surging fuel prices caused by his decision to strike Iran in late February. Data from the University of Michigan broken down by political affiliation showed that the decline in confidence was driven largely by self-identified independents, who represent a crucial group of swing voters. Sentiment among independents sank to 42.4 — barely above their record low of 40.6 in May — from 47.7 in September, even as scores among Democrats and Republicans registered slight improvements. The survey demonstrated a noticeable increase this year in the number of independents — and also notably Republicans — who cited high prices as a strain on their personal finances. Since January, the proportion of independents identifying inflationary pressures as damaging to their financial situation grew by 27%, while that figure surged by 52% among Republicans. Comparable responses among Democrats, by contrast, rose by 15%. Households with minimal or no investment in the stock market — which had been rising rapidly until recently amid enthusiasm over artificial intelligence — also reported high prices as a burden on their finances far more frequently than at the start of the year. STICKY INFLATION EXPECTATIONS The survey's gauge of consumer expectations for inflation over the next year ticked up to 4.7% from 4.6% in September. Twelve-month inflation expectations have escalated significantly from 3.4% in February, prior to the onset of the US-Israeli war with Iran. Consumer expectations for inflation over a five-year horizon rose to 3.5% from 3.4% in September and 3.2% in March, shortly after the conflict started. In an accompanying report on inflation expectations released alongside the October sentiment survey, Hsu noted that persistent high inflation expectations in the post-COVID-19 pandemic era present a challenge for Federal Reserve policymakers aiming to bring inflation back down to their 2% target — a threshold missed for more than five years. "Consumers broadly expect inflation to accelerate, and this year’s increases in inflation expectations are not limited to one part of the political spectrum," Hsu wrote. "The fact that aggregate consumer spending has been relatively resilient despite negative views of the economy provides another reason for caution. If part of consumption currently reflects precautionary spending to avoid future price hikes, disinflation may be even more difficult to achieve." Federal Reserve officials gather next week in Washington, and despite higher-than-anticipated inflation figures over the past two weeks, they are broadly expected to keep their benchmark interest rate steady at 3.75%-4.00% after raising it by a quarter percentage point in September. While most Fed officials have signaled that higher rates may be necessary, key leaders have also indicated a willingness to wait for additional data before making their next move. Join our commenting forum Join thought-provoking conversations, follow other Independent readers and see their replies Comments