US Univ. Of Michigan Sentiment Oct F: 71.7 (est 71.4; prev 71.4) - Final UofM consumer confidence comes in around preliminary estimates - Neil's Summar

US Univ. Of Michigan Sentiment Oct F: 71.7 (est 71.4; prev 71.4)

- Current Conditions: 77.7 (est 77.9; prev 77.9)

- Expectations: 67.9 (est 67.2; prev 67.2)

- 1-Year Inflation: 4.8% (est 4.8%; prev 4.8%)

- 5-10 Year Inflation: 2.9% (prev 2.8%)

Surveys of Consumers (umich.edu)

University of Michigan's final estimate of October consumer sentiment came in pretty much in line with the near 9-year lows originally reported.  The overall index ticked up to 71.7 from initial estimate of 71.4 which was down from 72.8 in September.  Future expectations, which fell from 79 to 65 in August, and improved to 68.1 in September, fell back to 67.2 in the first estimate and improved just to 67.9 in the final estimate, the second-lowest reading in a decade (after August).  Current conditions, which fell from 84.5 to 78.5 in August, and improved to 80.1 in September, fell back to 77.9 in the first estimate and fell a little further to 77.7 in the final estimate, the lowest since April 2020.  These compare with 79.2 and 85.9 a year ago.  

In terms of inflation, consumers expect inflation to rise 4.8% over the next year, the highest since 2008, the report showed (it should be noted this figure is found to roughly track actual currently reported 1-year inflation rates).  5-10 year expectations which did come down to 2.8% from 3.0% moved back to 2.9% in the final estimate. Buying conditions for big ticket items remained being seen as less favorable.

Mr. Curtin focused more in this report on inflation, noting that "Consumers not only anticipated the highest year-ahead inflation rate since 2008 in the October survey, consumers also expressed greater uncertainty about the year-ahead inflation rate than anytime in nearly forty years.... The declining resistance to price hikes among buyers will be joined by less resistance among sellers to hiking prices that will be justified by higher materials and labor costs. These reactions promote an accelerating inflation rate until a tipping point is reached when consumers' incomes can no longer keep pace with escalating inflation."

Surveys of Consumers chief economist, Richard Curtin

Consumer sentiment remained virtually unchanged from its mid month reading, gaining just 0.3 Index points, and just 0.1 Index points above the average in the past two months, and only 0.1 Index points below the April 2020 low. The positive impact of higher income expectations and the receding coronavirus has been offset by higher rates of inflation and falling confidence in government economic policies. Consumers not only anticipated the highest year-ahead inflation rate since 2008 in the October survey, consumers also expressed greater uncertainty about the year-ahead inflation rate than anytime in nearly forty years (see the chart). Note that this was the first major spike in inflation uncertainty recorded outside of a recession. Even uncertainty about the long-term inflation rate was the highest in more than a decade. Declining living standards due to inflation were spontaneously mentioned by one-of-every five households, concentrated among older and poorer households.

The patterns of consumers' reactions to recent rises in inflation represent the preconditions that can promote an escalating inflation rate during the year ahead. Consumers' recognition of high and rising prices is near universal, so too is their desire to reestablish spending for a more traditional holiday season. People understand that the origin of inflation has been in the upheavals in supply lines and labor markets. The acceptance of higher prices was caused by swollen savings due to the record pandemic cash incentives as well as by Biden's new social support programs. The declining resistance to price hikes among buyers will be joined by less resistance among sellers to hiking prices that will be justified by higher materials and labor costs. These reactions promote an accelerating inflation rate until a tipping point is reached when consumers' incomes can no longer keep pace with escalating inflation. In the past inflationary era, one recession was insufficient to realign expectations; it required a series of boom-bust cycles, until the Fed's Volcker finally defeated inflation by raising interest rates to record levels.

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