Consumer sentiment fell considerably from October as interest rates continued to rise and high prices failed to subside, according to the University of Michigan’s monthly Surveys of Consumers.
Consumer sentiment fell five points from October to 54 — nearly 10 percent, according to the report, erasing approximately half of the gains that had been made since June’s record low. That drop was especially pronounced in buying conditions for durables, which fell 21 percent due to high interest rates and continued high prices. The index for current economic conditions fell eight points to 57, and the index for consumer expectations dropped four points to 52.
The drop in sentiment comes as the Federal Reserve continues to raise interest rates to combat inflation and cool the economy. The Fed earlier this month increased interest rates by 0.75 percentage points for the fourth straight time. Fed Chair Jerome Powell said more rate hikes were ahead, although they could be smaller than they have been.
“There is significant uncertainty around that level of interest rates,” he said. “Even so, we still have some ways to go, and incoming data since our last meeting suggests that the ultimate level of interest rates will be higher than previously expected.”
Year-over-year inflation was measured at 7.7 percent in October, which was less than the 8.2 percent in September. According to the University of Michigan, the median expected year-ahead inflation rate is 5.1 percent. Long-term inflation expectations, currently at 3 percent, have remained in the 2.9 to 3.1 percent range for 15 of the last 16 months.
“Declines in sentiment were observed across the distribution of age, education, income, geography and political affiliation, showing that the recent improvements in sentiment were tentative,” said Surveys of Consumers Director Joanne Hsu. “Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election.”