Consumers’ View of Current Economy Improve But the Future Looks Gloomier

Highlights Oct.14,2022 19:51

Consumers feel better about current economic conditions, as supply chain disruptions have abated, but have grown more pessimistic about the future and inflation, according to the University of Michigan’s monthly consumer sentiment reading.

The index of consumer sentiment rose slightly to 59.8 from 58.6 in September, but the current conditions index rose 9.4% to 65.3. The index of consumer expectations, a more forward-looking indicator, slipped to 56.2 from 58.0 a month earlier.

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“Continued uncertainty over the future trajectory of prices, economies, and financial markets around the world indicate a bumpy road ahead for consumers,” said survey director Joanne Hsu.

Regarding inflation, consumers expect a 5.1% annual increase in prices by this time next year, but in the longer run, that drops to 2.9%.

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Inflation remains the top concern of most Americans, polls say, with annual inflation running 8.2% as of September. But rising interest rates are also affecting consumers, with mortgage rates and credit card interest charges rising substantially.

That is a result of the Federal Reserve’s campaign to slow the economy and the labor market through higher interest rates. That has helped lower expectations of inflation but is taking a toll on some sectors of the economy, notably housing.

Retail sales were flat last month but after factoring in inflation, it is clear consumers are being hurt. They have been switching their purchase habits away from durable goods such as furniture and appliances toward services and necessities, such as food, apparel and medicines.

The stock market, meanwhile, staged a large comeback on Thursday and early Friday, but the markets have been volatile of late as economic data continues to show an economy that is growing but struggling with inflation and higher rates.

“High inflation, slower wage and job growth, and the spend-down of crisis-era savings are eroding consumer purchasing power,” said Bill Adams, chief economist at Comerica Bank. “Consumer spending will likely be weaker in the next six months, which will likely contribute to a further downshift in overall economic activity.”