Grim Mood Still Grips U.S. Consumers

Consumer sentiment remains mired down by a pessimistic assessment about the economic outlook and a grim assessment of current conditions.

The University of Michigan’s consumer sentiment index ticked up by less than one percent in September, coming in below the mid-month preliminary reading of 59.5. The final reading for September came in at 58.6, essentially unchanged from the 58.2 reading in August.

The sentiment index bottomed out at 50.0 in June as gas prices hit record highs and inflation rose to the worst level in forty years. A retreat of gas prices and a cooling of inflation gave rise to a slight recovery in July to 51.5 and then a big jump up in August. The latest figures dash any hope that the recovery would continue on a steep path. Instead, it appears to have stalled.

Economists had forecast the final read would hold onto the midmonth figure of 59.5.

In a separate report issued Friday, the Commerce Department’s Bureau of Economic Analysis said that personal consumption expenditure prices in August were once again rising quickly. Core prices, which exclude food and energy, rose 0.6 percent compared with the prior month, matching the fastest rate of inflation since October 2001 and, prior to that, the early 1980s. So progress on inflation has stalled as well, supporting the idea that July was the peak of disinflation.

Consumer expectations for inflation over the next year ticked down from 4.8 percent to 4.7 percent, the lowest level in a year.  Expectations for inflation over the next five years declined to 2.7 percent from 2.8 percent in August. That will be reassuring to the Federal Reserve, which watches inflation expectations closely for signs that high inflation might become entrenched.

“Inflation expectations are likely to remain relatively unstable in the months ahead, as consumer uncertainty over these expectations remained high and is unlikely to wane in the face of continued global pressures on inflation,” said the director of the survey, Joanne Hsu.

The measure of consumer views of current conditions rose in September to 59.7 from 58.6 in August. The metric of expectations for the next six months, however, did not rise at all.

“Buying conditions for durables and the one-year economic outlook continued lifting from the extremely low readings earlier in the summer, but these gains were largely offset by modest declines in the long run outlook for business conditions,” Hsu said.

Compared with a year ago, consumer sentiment is down 19.5 percent. The current conditions gauge is down 25.5 percent and the expectations gauge down 14.8 percent.

Consumer spending rose 0.4 percent in August, the Bureau of Economic Statistics said in a report on Friday. But most of that additional spending was due to higher prices. Adjusted for inflation, consumer spending was up a tepid one-tend of a percentage point.