- The Michigan Consumer Sentiment Index dropped to 60.4 in its preliminary November reading, lower than expectations and below the 63.8 reading from October.
- Consumers’ year-ahead inflation expectations rose to 4.4% as elevated gas prices continued to sour sentiment.
- Consumer opinions on both current economic conditions and economic expectations also declined.
High borrowing costs and persistent worries about inflation are beginning to drag more heavily on consumers’ optimism over the economy, as consumer sentiment survey results fell for the fourth-consecutive month.
The Michigan Index of Consumer Sentiment preliminary November reading of 60.4 was lower than the 63.7 survey result that economists expected to see and a sharp drop from the 63.8 reading for October.
The steep decline in sentiment was spurred by growing concerns about the negative impact that high interest rates are having, as consumers’ long-run economic outlook fell 12%, despite reporting improvement in both their current and expected finances.
“Overall, lower-income consumers and younger consumers exhibited the strongest declines in sentiment,” wrote Joanne Hsu, director of the University of Michigan’s survey of consumers.
The closely-watched survey comes as Federal Reserve Chair Jerome Powell said that interest rates could need to be raised even further to combat inflation. The current federal funds interest rate is at a 22-year high at 5.25% to 5.5%, which has pushed rates higher for other loans, like mortgage rates that are currently around 7.9%, just lower than 30-year high rates hit in October.
The monthly survey also showed that consumers’ view of current economic conditions dropped almost 7% to 65.7 in November, down from October’s 70.6, while the index of consumer expectations declined 4% to 56.9 from 59.3.
Consumers Fear Inflation to Grow Worse
Inflation worries worsened, the survey showed, as consumers’ year-ahead inflation expectations moved to 4.4%, up from October’s reading of 4.2%. The higher figure shows that the jump from September’s 3.2% year-ahead inflation expectations were genuine, with the current reading being the highest since November 2022. In the two years before the pandemic, year-ahead inflation expectations ranged from 2.3% to 3.0%.
Long-run inflation expectations reached their highest levels since 2011, as consumers expect inflation five-years-out to reach 3.2%, higher than October’s 3.0%. For both the short- and long-term, gas price expectations are driving consumer worries over inflation, Hsu wrote.