Consumer sentiment rises to highest level since May
REAL ECONOMY BLOG | September 16, 2022
Authored by RSM US LLP
Consumer sentiment improved in September as inflation concerns eased, according to the University of Michigan’s index released on Friday.
The index rose to 59.5 in September, the highest since May. Still, consumers remain pessimistic compared to before the pandemic, when the long-term average was above 90.
Most of the improvement in the September reading came from the lower third of incomes, which has been under the most stress as high prices eat into savings and spending on essentials.
The main driver of current improvement was the continued decline in gasoline prices, which have fallen by about 3% since the start of the month.
Together with the material slowdown in headline inflation over the past two months, inflation expectations for the next 12 months fell by 0.2 percentage points, to 4.6%, and for the next five to 10 years by 0.1 percentage points, to 2.8%.
That should come as good news for the Federal Reserve at a time when the fear of inflation becoming entrenched continues to mount, especially after the most recent data on the consumer price index.
The Fed uses the University of Michigan’s data as one of its key gauges of inflation expectations.
But that is only one side of the equation between inflation and spending growth.
Despite an improvement in overall sentiment, consumers do not signal that they are ready to spend more on big-ticket items like housing, vehicles or household appliances. The subindexes for that kind of spending stayed unchanged in September.
Inside the data
Under the headline number, the lower third of the income bracket posted significant improvement in overall sentiment, up to 61.3 from 46.5 in the prior month. The top income bracket was the only one to have sentiment increase, rising to 59.6 from 56 in August.
Sentiment improved across all age groups, with the largest increase coming in the 18-44 group, rising by 7.6 percentage points on the month.
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This article was written by Tuan Nguyen and originally appeared on 2022-09-16.
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