Feeling stuck in the midst of economic uncertainty

Consumer sentiment was largely unchanged in October, rising just 1.3 index points over September.

After a notable improvement in August, sentiment remained low by historical standards as consumers continued to express concerns about inflation. Durable goods purchasing terms rose 23% on the back of lower prices and supply constraints. However, expected business conditions for next year declined by 19%, indicating that consumers believe the economy will get worse before it gets better.

“Overall sentiment remains low by historical standards and remains consistent with a looming recession,” said UM economist Joanne Hsu, director of surveys. “The continued decline in sentiment for higher-income consumers is concerning given the amount of consumer spending they drive, and their unfavorable views are unlikely to diminish due to the ongoing turmoil in financial markets.”

Sentiment deteriorates for higher-income consumers

Little change in sentiment obscures earnings patterns that diverged unusually in October. Consumers with higher incomes typically report higher sentiment levels than consumers with lower incomes. However, today’s data shows that for higher-income consumers, sentiment continued to decline in recent months and is now even worse than that of their lower-income counterparts.

The recent turmoil in financial markets weighed on higher-income consumers, with 17% spontaneously citing declining asset values as a negative influence on their personal finances, the highest share in 5 months. Their expectations about their own income and, more generally, their personal finances over the next year also deteriorated considerably this month.

Consumers with higher incomes also expressed a worsening outlook for business conditions, both short- and long-term, and labor markets. With the simultaneous impacts of falling stock values and rising prices, higher-income consumers appear increasingly concerned about the prospect of an economic downturn.

Sentiment improves for lower-income consumers

Despite the recent rebound in gas prices, sentiment among lower-income consumers hit its most favorable reading in 10 months. This improvement was driven primarily by rising current income and reflects the strength of the labor market, particularly in segments with low-wage workers. Relative to September, lower-income consumers also reported more favorable expectations for their future income and personal finances in the coming year.

Lower-income consumers’ outlook for the short- and long-term macro economy also improved markedly from last month; many have noted that supply issues seem to be easing. However, given their vulnerability in an economic downturn, confidence in their financial situations could quickly reverse.

Consumer Sentiment Index

The consumer sentiment index rose to 59.9 in the October 2022 survey, up from 58.6 in September and down from 71.7 last October. The current index rose to 65.6, from 59.7 in September and down from 77.7 last October. The expectations index fell to 56.2, down from 58 in September and down from 67.9 last October.

About surveys

The Consumer Surveys is a rotating panel survey based on a nationally representative sample that gives every US household an equal chance of being selected. Interviews are conducted throughout the month by phone. The minimum monthly change required for significance at the 95% level of the sentiment index is 4.8 points; for the Actuality and Expectations Index, the minimum is 6 points.

Consumer surveys
Institute of Social Research of the UM

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