Stubborn inflation is making Americans feel pretty lousy about their own finances and the economy.
- Consumer sentiment slipped in September as high inflation continued to dampen peoples’ views of the economy and their own finances.
- There was light at the end of the tunnel, however, as expectations for future inflation fell slightly.
- Economists and officials at the Federal Reserve watch measures of consumer feelings closely for clues about the health of the economy.
The University of Michigan’s Index of Consumer Sentiment, a measure of how people feel about their own finances and the economy, ticked down to 67.7 in September from 69.5 in August, the university said Friday. The index, based on a survey of U.S. adults, has hovered below the historical average of 86 for months. It’s now about 35% higher than the all-time low it hit in June 2022, when annual inflation was running at a scorching 9.1%, Joanne Hsu, director of the survey, said in a note accompanying its release.
Consumer sentiment is closely watched by economists because it can indicate how willing people are to spend their money—and consumer spending is the main driver of economic growth. Officials at the Federal Reserve may also look to the survey for clues about where the public thinks inflation is headed, and here there was a glimmer of good news, as the survey showed people’s expectations for the year ahead and the long run both fell.
“With gas prices expected to remain elevated, these forecasts could tick higher again in the months ahead,” Nancy Vanden Houten, lead U.S. economist at Oxford Economics, wrote in a commentary. “But for now, the Fed will take comfort from evidence the inflation expectations remain well anchored.”
Fed officials are set to meet next week to decide whether they’ll hike the central bank’s benchmark interest rate for a 12th time in the central bank’s campaign to subdue consumer price increases back down to the goal of a 2% annual inflation rate. Fed officials monitor inflation expectations because they’re thought to be something of a self-fulfilling prophecy, with consumers who expect high price increases making decisions with their money that stoke inflation.
High inflation over the last two years has made consumers feel pretty glum about the economy, even though the job market—which historically has had great influence over consumer sentiment—is still favorable for workers.
“Before Covid, the current conditions measure tended to track jobless claims quite closely, but that relationship has broken down, and people’s perceptions of the state of the economy now are much more downbeat than is implied by the low level of layoffs,” Ian Sheperdson, chief economist at Pantheon Macroeconomics, wrote in a commentary. “The impact of the pandemic still lingers, and persistent high inflation probably also is constraining sentiment.”