Economy|Business and Economy
US consumer sentiment drops as inflation worries mount
Surging costs for food, gas and housing are eroding consumers’ purchasing power despite stronger wage growth.
More than a year and a half after the coronavirus pandemic upended daily life, the supply of basic goods at United States grocery stores and restaurants is once again falling victim to intermittent shortages and delays [File: George Frey/Bloomberg]
By Jordan YadooBloomberg
12 Nov 2021
U.S. consumer sentiment unexpectedly collapsed in early November as Americans grew increasingly concerned about rising prices and the inflationary impact on their finances.
The University of Michigan’s preliminary sentiment index decreased to 66.8 from 71.7 in October, data released Friday showed. The November figure trailed all projections in a Bloomberg survey of economists which called for an increase to 72.5.
Waning confidence reflects “ an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” Richard Curtin, director of the survey, said in a statement.
Consumers expect inflation to rise 4.9% over the next year, the highest since 2008, the report showed. They expect prices will rise 2.9% over the next five to 10 years, unchanged from the previous month.
“One in four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact,” Curtin said.
Surging costs for food, gas, and housing are eroding consumers’ purchasing power despite stronger wage growth. About half of all families anticipate declines in inflation-adjusted incomes next year, according to the data. The sentiment figures follow government data earlier in the week that showed the highest annual inflation in three decades.
While consumers are growing more distraught over inflation’s impact on buying conditions, household spending showed signs of improving at the end of a soft third quarter.
“Looking ahead, the risk is outsize, persistent price rises feed into the consumer-inflation psyche,” Bloomberg economist Eliza Winger said in a note. “In the near term, shortages and prices should restrain inflation-adjusted spending.”
Political Impact
President Joe Biden said in a statement earlier this week that addressing rising inflation is a “top priority” for him as he faces declining approval ratings. The Michigan figures showed a deep divide along partisan lines. Sentiment among Republicans plunged 17 points to the lowest on record while for Democrats respondents it slipped 5.3 points.
The Michigan report showed buying conditions for household goods deteriorated sharply, with a gauge falling to a reading of 78 that was the second-lowest in data back to 1978. There were more frequent mentions in the survey of higher costs for vehicles, durable goods and homes.
Twenty-four percent of households expect to be worse off in the coming year, the highest since June 2008, according to Curtin.
The gauge of current conditions dropped to 73.2, the lowest since 2011. A measure of future expectations decreased to 62.8, which was the weakest since 2013, according to the survey.
Americans are also more pessimistic about the economy’s prospects over the coming five years. The university’s gauge fell to the lowest since 2011.
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