Americans' consumer sentiment has fallen to a three-year nadir, nearing its all-time lowest point as measured by The University of Michigan, approximately one month into the government shutdown, due to concerns about their personal finances and expectations for business conditions.
TL;DR
- Consumer sentiment dropped nearly 30% year-over-year to a three-year low of 50.4.
- Concerns about personal finances and business conditions, plus a government shutdown, fueled the decline.
- Most demographics saw sentiment fall, except for those with large stock holdings.
- Unemployment expectations rose significantly, with many predicting higher joblessness ahead.
According to the November survey, consumer sentiment registered at 50.4, a significant drop of 6.2% compared to the previous month, and a substantial decline of almost 30% year-over-year.
Economists were caught off guard. Those polled had expected a slight month-to-month increase for a reading of 54.2.
“With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy,” said Joanne Hsu, Surveys of Consumers Director at University of Michigan. “This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation.”
The one exception, Hsu said, were those with large stock holdings. Big tech companies, particularly in artificial intelligence, have driven explosive returns for investors. The tech-heavy Nasdaq is up 17% this year.
“The top 20% of households by income drive 40% of consumer spending, and we think the wealth effect from the buoyant stock market has strengthened this year,” according to Michael Pearce, deputy chief U.S. Economist at Oxford Economics.
America's biggest retail trade organization projected a Christmas season worth one trillion dollars on Thursday, anticipating that sales during November and December will increase by as much as 4.2%.
According to the UMich survey, inflation expectations for the coming year rose slightly to 4.7% in November, up from 4.6% in October, while expectations for the long run decreased to 3.6% from 3.9% the previous month.
James Knightley, chief international economist at ING, said the report’s key takeaway is jobs.
“Seventy-one percent of households now expect unemployment to rise over the coming (12 months) while only 9% expect unemployment to fall. That gives a net reading of 62% predicting higher unemployment versus 52% last month,” Knightley said. “A huge increase which … has historically been the prelude to an ugly outcome for jobs.”
The government usually publishes its main jobs report on the first Friday of each month, but all data releases are suspended due to the shutdown. Economists have been consulting private data, which indicates that finding employment is taking more time for job seekers in a "low hires, low fires" market.
At least one economist noted a change in methodology may have impacted the survey results.
“These numbers should be taken with a grain of salt, given the likely temporary drag on confidence from the ongoing government shutdown, plus the Michigan survey’s switch to online rather than phone-based sampling last year, which seems to have introduced a structural break that produces more downbeat results,” said Oliver Allen, senior U.S. Economist for Pantheon Macroeconomics.
The UMich survey was conducted before Election Day on Tuesday.