Sentiment slips to 47.8 in September
Americans felt gloomier in early September as rising gasoline costs and renewed trade tensions squeezed budgets and patience. In the University of Michigan's early reading, the sentiment index registered 47.8, down from 51.7 and below every forecast in a Bloomberg economist survey. It is the second month in a row sentiment has deteriorated.
Inflation expectations tick higher as gas sets a September record
Consumers now expect prices to climb 4.6% over the next year, up from 4% in August. Over a five to ten year span, they put inflation at 3.4% a year, a touch above last month. Overall, inflation expectations reached their highest point since June.
Gasoline has gotten more expensive, reaching the highest level ever for September while the war with Iran continues. That is chipping away at paychecks and amplifying frustration about the cost of living.
A separate report Friday showed consumer prices were 3.4% higher in August than a year earlier. Stripping out food and energy, prices rose 0.3% from July.
Rates, jobs, and the near-term outlook
For the first time since 2023, most respondents think interest rates will be higher a year from now as the Federal Reserve works to restrain inflation. Views on the economy for the next 12 months worsened to the weakest reading since July 2022.
Labor data released last week pointed to stronger momentum than many expected: job growth picked up in August and the unemployment rate was unchanged. Other signals, like fewer job openings and historically low new claims for unemployment insurance, suggest a labor market that is hiring and firing at muted levels.
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Politics, perceptions, and what the indexes say
Confidence weakened among respondents identifying with both major parties. Only 35% of Republicans say the government is handling the economy well, marking the lowest share since last year, when President Donald Trump returned to the White House.
"Notably, even Republicans, who generally supported economic policy under the current administration, have exhibited a marked decline in favorability."
Under the hood, the current conditions gauge slipped to 50.9 from 51.9, while the expectations index dropped to 45.8 from 51.5. Assessments of both current and future personal finances also fell. The survey collected responses from Aug. 25 through Sept. 7.
What it means for your money
When sentiment cools and inflation expectations creep up, people tend to rethink big purchases and how they feel about borrowing. Add in a majority now bracing for higher rates over the next year and near-term economic views at their weakest since mid 2022, and you get a consumer backdrop that could slow spending just as fall gets underway.
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