Consumer Sentiment Drifts Sideways

Consumer sentiment has been unchanged for the last four months. The University of Michigan Index of Consumer Sentiment reported that its full month measure for October declined versus September to 67.7, about its level during July. The latest level slipped from the mid-month reading and also was slightly below expectations for a reading of 68.0. This uninspiring performance helps explain the recently mediocre gains in real consumer spending. During the last ten years there has been a 63% correlation between the level of sentiment and the three-month growth in real consumer spending, recently 1.8%.

The near stability of the monthly sentiment figure reflected slight divergence between the two major series' components, as well as its sub-components. The current conditions figure slipped to 76.6 from 79.6 as buying conditions for large household goods fell to its lowest level since November 2009. The assessment of current personal finances also deteriorated, but just a little to its lowest since July. This level sustains a modestly firming trend in place since the middle of last year.

In contrast, the consumer expectations index rose to 61.9 from 60.9 in September, though the latest was lower than the mid-month reading. Feelings about business condition during the next twelve months rose from September but remained below August. The expected change in personal finances also rose to its highest level since June. Then some despair set into the readings. For the next five years expected business conditions were at the lowest level since March of 2009.

Expected price inflation during the next year edged back up to 3.3% from 3.0% in September. Notice that this figure bears little resemblance to the current pace of CPI inflation, 1.1% over the last year. Recent experience is not being extrapolated. Respondents' view of government policy, which may eventually influence economic expectations, fell further this month to 66 from 76 in September; this latest is the lowest reading since January 2009. Only 11% of respondents think that a good job was being done by government while 45% thought a poor job was being done, the most since January 2009.

The Reuters/University of Michigan survey data are not seasonally adjusted. The readings are based on telephone interviews with just over 300 households during early-to-mid October. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.