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The University of Michigan’s consumer sentiment index fell to 46.3 in its preliminary October reading, and the number is lower than it sounds. For comparison, the index has averaged about 84 since 1978, according to Advisor Perspectives. The final October reading is due Friday, October 23, so the next few days are a good moment to look at what the consumer sentiment index measures, why it’s so low, and what it does and doesn’t tell you about your own finances.
This explainer covers the October numbers, what is driving the gloom, who feels it most, and how to read a sentiment survey without overreacting.
What the consumer sentiment index showed in October
First, a quick note on what is being measured. The Michigan survey is a monthly poll that asks households about the economy, their own finances, business conditions and whether it’s a good time to buy big items. A preliminary reading comes out mid-month and a final one at month’s end. Advisor Perspectives compares it with the Conference Board’s measure, which leans more on employment and swings more, and with the small business optimism survey from NFIB, which shows a similar mood.
The preliminary reading, released October 9, came in at 46.3. Investinglive says forecasters expected 47.8, and Trading Economics puts the consensus at 47.6, so the miss was about a point and a half either way. September’s final reading was 48.1, August’s was 51.7 and July’s was 55.2, which Investinglive calls a recent high. The index has slid for three straight months. It is the lowest reading since May, when the index hit 44.8, a record low for this year.
The sharpest drop was in the sub-index of current conditions, which fell to 44.7 from 50.9. Trading Economics and ZeroHedge both describe that as the lowest ever recorded for that measure. The expectations sub-index went the other way, rising 2.2 percent to 47.3. The split suggests people feel worse about the present than about what’s coming, though neither number is cheerful.
Advisor Perspectives adds that 46.3 sits below the first percentile of the index’s history, and below the level at the start of each of the six recessions since the survey began. The headline number is also 13.6 percent below a year earlier, and the current-conditions measure is 23.7 percent lower than it was then. That’s a statistic, not a forecast. Sentiment can stay low without a recession, and the survey measures mood, not spending.
What is driving the consumer sentiment index lower
The pattern points to prices. Trading Economics says persistent high prices and elevated borrowing costs weighed on buying conditions for big purchases, and its September coverage also named fuel costs, trade disputes and the Iran conflict. Our reporting shows the same pressures. Gasoline is near $4.33 a gallon, as we covered in our piece on gas prices and Brent crude, and September inflation hit 3.7 percent, as our report on the Fed’s rate-hike odds explained. Mortgage rates around 7.3 percent don’t help.
Inflation expectations are rising too. Households now expect prices to rise 4.7 percent over the next year, up from 4.6 percent in September, and 3.5 percent a year over the longer run, up from 3.4 percent. Advisor Perspectives notes that one-year expectations were 3.4 percent in February, before the Iran conflict began. Expectations matter because people who expect higher prices may change their spending, wage demands and borrowing.
Who feels it most
Not everyone is equally gloomy. Several write-ups note that sentiment fell steeply among lower-income consumers and among people with smaller stock portfolios. The likely reason, Trading Economics says, is that they have less room to absorb more price increases. Households with larger portfolios are cushioned when stocks do well, though this has been a rough month for tech shares, as we covered in our report on the AI stock selloff.
Politics is a murkier part of the story. ZeroHedge, relaying the survey director Joanne Hsu, says gains among Democrats and Republicans were offset by a decline among independents. Advisor Perspectives describes declines across the political spectrum. Those accounts don’t match, so we won’t lean on either. What several sources agree on is that the outlook has softened broadly since the start of the year.
How to read the consumer sentiment index
Use the consumer sentiment index as a mood gauge, not a crystal ball. The survey asks people how they feel, and feelings and behavior can diverge. Consumers have kept spending in past downturns while telling pollsters they were worried. Advisor Perspectives does point out that long stretches with a depressed three-month average have tracked negative economic growth, so a low reading isn’t something to ignore. The next reading, and what banks report about card spending, will say more. We covered that angle in our preview of Capital One and American Express earnings.
None of this means your own finances are in trouble. Plenty of households with steady jobs and manageable debt feel uneasy because prices keep rising. Practical steps don’t depend on the headline. If prices are squeezing your budget, review recurring bills, check whether your savings are earning a competitive rate, and build or rebuild a small cushion. This is general information, not financial advice.
What to watch next
The final October reading arrives October 23, and revisions are common, sometimes by a point or two. Also watch whether year-ahead inflation expectations keep climbing, since that is the number the Federal Reserve follows closely. The Fed meets October 27 and 28. Retail sales and card-spending data over the next few weeks will show whether shoppers are acting on their gloom or simply voicing it, and the holiday shopping season will be the first big test.
Editor’s take
A consumer sentiment index near its historic lows is a warning about mood, and moods can change quickly if gas prices ease and the stock market steadies. Until then, the survey is another reminder that price pressure, not a lack of jobs, is what households are talking about. The number to watch isn’t the headline. It’s whether the gap between how people feel and how they spend finally closes.
