Consumer sentiment fell in September as surging fuel prices fuel inflation fears and looming midterm elections have dimmed the economic outlook for both Republicans and Democrats.
The University of Michigan final consumer sentiment index fell to 48.1 in September from a month earlier, the worst reading in four months. That represents a slight improvement from the mid-month preliminary read of 47.8.
The revival of inflation pressures due to the war with Iran has taken a heavy toll on consumer sentiment, pushing it toward historic lows. The Federal Reserve raised interest rates this month after it became clear that the Iran war would not quickly come to a close and oil prices were likely to remain elevated.
“The short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole,” Joanne Hsu, director of the survey, said in a statement.
Diesel hit a record high in September and the price of gasoline climbed sharply. Despite high fuel prices, consumers have not slowed spending in other parts of the economy, demonstrating a surprising resilience likely linked to the historic stretch of very low unemployment and the lowest year-to-date jobless claims since 1969.
Consumers expected prices to rise 4.6 percent over the next 12 months, up from four percent in the previous month. Over the next five years, they expect prices to rise 3.4 percent.
Consumer sentiment fell seven percent in September compared with the previous month. Among Republicans, it fell 5.9 percent to 77.2; among Democrats, it fell 11.4 percent to 35.6; and among independents, it dipped by 0.6 percent to 47.7.
The decline in sentiment was driven by dimming optimism about the future. The assessment of current economic conditions slid 1.9 percent in September, while the gauge of expectations fell by seven percent.
Among Democrats, the expectations gauge fell 16.2 percent. Sentiment among Democrats had improved earlier in the summer but the August and September readings have now erased the gains.
Among Republicans, the outlook measure declined 11.4 percent but it is off by 25.2 percent since the start of the year. The outlook among independents declined by 1.7 percent in September and is off by 10.6 percent since the start of the year.
“Despite political differences, consumers unanimously believe that the outlook for the economy has diminished,’’ Hsu said.
A gauge of the outlook for the economy in the year ahead slumped in September to the lowest since 2022. Consumers’ expectations for their personal finances also deteriorated.
“Overall, interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year,” Hsu said.
Even the bright spot in the report—feelings about durable goods purchases—is tarnished by inflation fears. The survey showed buying conditions improved for durable goods—but mostly because consumers want to get ahead of expected price increases.
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