American consumers are the gloomiest they've been in more than seven decades. That's according to the University of Michigan's consumer sentiment index, which fell to 46.3 in the preliminary October reading, from 48.1 in September.
Economists expected 47.6. Only May's 44.8 was lower.
Before this year, the record low was 50.0 in June 2022, and before that 51.7 in May 1980.
Consumers now expect prices to rise 4.7% over the next year, up from 4.6% in September. That is the highest reading since May. However, the households that own the most stock have barely changed their mind this year.
Why is Consumer Sentiment Falling So Unevenly?
The current conditions index—which measures how consumers judge their finances and buying conditions today—dropped 12.2% in a month to 44.7, a record low, versus a consensus of 50.5.
In contrast, the expectations index rose to 47.3 from 46.3.
"Buying conditions for durables plummeted amid high prices and borrowing costs," Surveys of Consumers Director Joanne Hsu said.
The split by wealth is wide. Since January, sentiment has fallen roughly 25% among consumers who own no stock and roughly 27% among those with the smallest portfolios, according to a chart published with the release.
For the top third of stockholders, the decline is roughly 7%.
The same survey shows a drop of about 23% among independents, 14% among Republicans and 9% among Democrats.
"Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year," Hsu said.
Gasoline Drives Inflation Expectations Higher
Year-ahead inflation expectations stood at 3.4% in February, before the Iran conflict began. They have not returned to that level since. Long-run expectations also rose, from 3.4% to 3.5%.
Gasoline averaged about $2.93 a gallon before the conflict, according to a report the University of Michigan published Friday. It rose above $4.50 in May and approached that level again in September.
The AAA national average was $4.37 on Friday, 40.5% higher than a year ago.
As a result, most households plan to change how they spend. Only 31% of consumers expect to keep buying as usual the items with large price increases. Another 54% plan to cut back, and 16% plan to stop buying them.
The share planning to stop was 8% in 2022, near the peak of post-pandemic inflation.
Half Of The Wealthiest Stockholders Plan To Spend As Usual
For example, half of the wealthiest stockholders expect to spend as usual, up from 39% in 2025. Among consumers with no stock, the share is 18%.
The 16% who plan to stop buying have a sentiment reading of 27.5 and expect inflation of 5.3%. They also expect unemployment to rise.
"These expectations are largely stagflationary," Hsu said in the report.
In addition, the survey tracks how many consumers want to buy early to avoid future price increases.
That share has climbed modestly since February. In the 1960s and 1970s, sharp increases in this measure came before each new wave of inflation.
"It is likely that the risks of inflationary psychology have yet to pass," Hsu said.
Bond Yields Moved Higher After the Release
The 10-year Treasury yield rose 3 basis points to 5.27% at 10:14 a.m. ET. The 2-year yield rose 5 basis points to 4.81%, and the 30-year yield rose 2 basis points to 5.63%.
Fed funds futures priced a 21% chance of a rate increase at the Oct. 28 meeting, up from 18% on Thursday.
Stocks were little moved. The S&P 500 — tracked by the SPDR S&P 500 ETF Trust (SPY) — gained 0.3% to 7,788 and the Nasdaq 100 added 0.2% to 30,795.
The State Street Consumer Discretionary Select Sector SPDR ETF (XLY) rose 0.6% to $112.43. However, the State Street SPDR S&P Retail ETF (XRT) slipped 0.3% to $83.63.
Gold futures rose 1.3% to $4,211.60 an ounce, and Bitcoin (BTC) gained 1.3% to $82,745.
