US consumer sentiment declined in October as rising living cos
ts and growing economic uncertainty weighed on American households. Lower-income consumers faced particularly strong financial pressures, according to the latest University of Michigan survey.
The University of Michigan’s consumer sentiment index fell to 46.3 in October, compared with 48.1 in September. The reading also missed economists’ expectations of 47.5, highlighting continued concerns about the US economic outlook.
US Inflation Expectations Rise as Consumer Confidence Weakens
Inflation expectations for the next 12 months increased to 4.7%, up from 4.6% in September. However, the figure remained slightly below economists’ forecast of 4.8%.
Meanwhile, the US Consumer Price Index (CPI) showed annual inflation of 3.4% in August.
Joanne Hsu, director of the University of Michigan’s Surveys of Consumers, emphasized that inflation expectations remain significantly elevated. In February, before the US-Israeli military offensive against Iran began, the corresponding figure stood at 3.4%.
The prolonged conflict has disrupted energy supplies from the Middle East, driving gasoline and diesel prices higher worldwide.
Consequently, concerns have intensified that persistent energy-driven inflation could force the Federal Reserve to maintain a more restrictive monetary policy.
The Fed already raised interest rates in September, marking its first rate increase since 2023.
Long-Term Inflation Fears Add to Economic Uncertainty
Americans also became more concerned about inflation over the longer term.
Long-run inflation expectations climbed to 3.5% in October from 3.4% the previous month.
Hsu pointed out that this reading remains considerably above the 2.8% to 3.2% range recorded throughout 2024.
These figures suggest that consumers increasingly expect elevated prices to persist, rather than viewing current inflation pressures as temporary.
Higher inflation expectations could also complicate the Federal Reserve’s efforts to maintain price stability while supporting economic growth.
Lower-Income Americans Face Growing Financial Pressure
The University of Michigan survey revealed particularly sharp declines in confidence among lower-income households and Americans with relatively small stock portfolios.
According to Hsu, these consumers generally have fewer financial resources available to absorb rising prices.
As a result, higher costs for essential goods, energy, and everyday services have placed additional pressure on household budgets.
The decline in consumer sentiment also reflects growing dissatisfaction with the broader direction of the US economy.
Hsu indicated that frustration over living expenses continues to increase across political groups. Many Americans believe economic conditions have deteriorated since the beginning of the year.
Cost-of-Living Crisis Could Influence US Midterm Elections
Affordability has emerged as a central issue ahead of the upcoming US midterm elections.
Persistent inflation and elevated household expenses have increased political pressure on President Donald Trump and the Republican Party.
Recent opinion polls suggest that voter dissatisfaction with high prices could threaten Republican control of at least one chamber of Congress.
Therefore, developments in inflation, energy markets, and consumer confidence could play an important role in shaping voter sentiment.
The economic outlook remains particularly sensitive to geopolitical tensions and their potential impact on fuel prices.
US Consumer Spending Remains Resilient Despite Inflation
Despite weakening consumer confidence, recent economic indicators suggest that household spending has remained relatively resilient.
Consumer expenditures represent a major component of US economic activity, making spending trends especially important for assessing the country’s growth prospects.
Retail sales rebounded strongly in August, supported by solid demand across several product categories.
Spending at restaurants and bars also contributed to the recovery, suggesting that many Americans continue to make discretionary purchases despite rising costs.
Nevertheless, the divergence between weaker consumer sentiment and resilient spending highlights uncertainty surrounding the economy.
The coming months will reveal whether American households can maintain their current spending patterns as inflation pressures persist.
For investors, future consumer confidence reports, inflation releases, and Federal Reserve policy decisions will remain important indicators of the US economic outlook.
