US consumer sentiment slumps; inflation expectations edge up

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US consumer sentiment slumped in November amid persistent worries about inflation and higher interest rates, according to a survey on Friday, which also hinted at a sharp slowdown in spending on goods.

The University of Michigan’s preliminary November reading on the overall index on consumer sentiment came in at 54.7, down from 59.9 in the prior month.

The 8.7% decline, which erased about half of the gains since the index’s tumble to a historic low in June, also came as gasoline prices pushed higher.

Economists polled by Reuters had forecast a preliminary reading of 59.5. The survey’s reading of one-year inflation expectations edged up to 5.1% from 5.0% in October. The survey’s five-year inflation outlook rose to 3.0% from 2.9% in October.

That suggested that inflation could remain uncomfortably high, even though price pressures showed signs of starting to subside in October. Data on Thursday showed consumer prices rose less than expected in October, pushing the annual increase below 8% for the first time in eight months.

“The Fed telegraphed their intentions to slow the pace of rate increases and this report will not likely alter those intentions,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina.

“However, those views could change if inflation expectations reach the elevated levels (of) earlier this year.”

The deterioration in sentiment this month was across the board, with buying conditions for long-lasting manufactured goods falling 21% “on the basis of high interest rates as well as continued high prices.”

While that is consistent with a shift in spending to services from goods, some economists do not expect a collapse in consumer spending. The University of Michigan survey continues to struggle below its pre-pandemic levels.

In contrast, the Conference Board’s consumer confidence index remains above early pandemic lows.

“The correlation between changes in monthly consumer sentiment and real consumer spending is low, especially for this measure and especially in the short run,” said Scott Hoyt, a senior economist at Moody’s Analytics in West Chester, Pennsylvania. “Further, consumers have abundant excess saving, and recent data suggests they are willing to dig into this pile of cash to keep their real spending at least stable.”