The Index of Consumer Sentiment decreased to 87.9 at the beginning of October, its lowest level since last September and the second lowest level in the past two years, according to the Survey of Consumers conducted by the University of Michigan.
The Surveys of Consumers is an indicator of the future course of the national economy. Each monthly survey contains approximately 50 core questions, each of which tracks a different aspect of consumer attitudes and expectations. The samples for the Surveys of Consumers are statistically designed to be representative of all American households, excluding those in Alaska and Hawaii. Each month, a minimum of 500 interviews are conducted by telephone from the Ann Arbor facility.
The decrease is most evident in households with incomes below $75,000, whose index fell to its lowest level since August of 2014.
“In contrast, confidence among upper income households remained unchanged in early October from last month, and more importantly, at a level that was nearly identical to its average in the prior twenty-four months at 98.3 versus 98.2,” said Richard Curtin, Survey of Consumers' chief economist.
The current economic conditions increased 1.2% from last month’s 104.2 and 3.1% from last year’s 82.1 to October’s early sentiment of 105.5.
“Perhaps the most concerning figure was a decline in the Expectations Index, which fell to its lowest level in the past two years, again mainly due to declines among households with incomes below $75,000,” Curtin said.
“It is likely that the uncertainty surrounding the presidential election had a negative impact, especially among lower income consumers, and without that added uncertainty, the confidence measures may not have weakened,” Curtin added.
The Index of Consumer Expectations, which is included in the Leading Indicator Composite Index published by the U.S. Department of Commerce Bureau of Economic Analysis, decreased 7.4% from last month’s 82.7 to 76.6. This is also down 6.7% from last year’s 82.1.
An article by Jill Mislinski for Advisor Perspectives explains what this means historically:
The Michigan average since its inception is 85.4. During non-recessionary years the average is 87.6. The average during the five recessions is 69.3.
“Prospects for renewed gains, other than a relief rally following the election results, would require somewhat larger wage increases and continued job growth as well as the maintenance of low inflation,” Curtin said. “Overall, real personal consumption can be expected to increase by 2.5% through mid 2017.”
While the index is at its lowest since last year, not everyone sees it as a negative sign.
“Despite declining in October, the University of Michigan measure of consumer confidence remains at a fairly high level by past standards and consistent with a decent rate of consumption growth,” Capital Economics Economist Andrew Hunter said.
“Accordingly, despite the weaker retail sales data released earlier today, we still expect real consumption to slow only gradually over the rest of this year,” Hunter said.