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consumer sentiment falls in october high prices and global tensions outweigh economic gains

Consumer Sentiment Falls in October: High Prices and Global Tensions Outweigh Economic Gains

Consumer Sentiment Dips in October Despite Economic Gains

The University of Michigan’s consumer sentiment index declined in October, falling to 68.9 from 70.1 in September. This decrease comes after two consecutive months of gains, indicating a shift in consumer outlook despite recent positive economic indicators.

The decline in sentiment appears to be primarily driven by persistent high prices, which continue to frustrate consumers and impact their economic perspective. This downturn comes despite several factors that might have been expected to boost consumer confidence, including the Federal Reserve’s recent interest rate cut in September, a decrease in gas prices, and cooling inflation trends.

However, potential negative influences such as the aftermath of Hurricane Helene and ongoing turmoil in the Middle East may have contributed to the dampened sentiment. Additionally, a recent uptick in mortgage rates following an initial decline after the Fed’s rate cut could be weighing on consumer minds.

Historically, the sentiment index reached its nadir in June 2022 during peak inflation. Since then, it has risen by approximately 40%, yet remains below pre-pandemic levels. Interestingly, political affiliation appears to play a role in the economic outlook, with Republicans showing a more pronounced drop in sentiment than Democrats.

Despite the negative sentiment, consumer spending remains robust, presenting a paradox in economic indicators. Economic growth for the July-September quarter is projected at a healthy 3.2%, largely supported by continued consumer spending.

Joanne Hsu, director of the University of Michigan’s consumer surveys, noted, “Consumers have been particularly sensitive to inflation and interest rates over the past two years, and small changes in these factors could push sentiment in either direction.”

As the holiday season approaches, economists and retailers will closely monitor consumer behavior to gauge the potential impact on the broader economy. While sentiment may be wavering, the resilience of consumer spending continues to be a key factor in maintaining overall economic health.