US consumer sentiment continued to hold firm in the face of midterm election uncertainty in October, although the University of Michigan Consumer Sentiment Index showed a mild decline from 98.6 to 98.3.
Key Takeaways
- The UM Consumer Sentiment Index came in at 98.3 compared to a surveyed forecast of 98.
- Higher interest rates have created uncertainty in car and home purchases.
- Despite two monthly declines in a row, sentiment is in the range of a 14 year high due to the tight labor market and increasing wages and take-home pay.
- The survey showed consumer outlook for their own finances and the economy dwindling to 88.7.
Sentiment toward car purchases is at a 5-year low due to higher purchasing and borrowing costs and favorable attitudes towards buying new homes is at an even worse 10-year low, reflected in the recent 5.5% drop in new home sales which last month’s report revealed are at a two-year low.
However, respondents were in general very pleased with their current situation with a reading of 113.2 and high certainty regarding job and income prospects. 91% of respondents do not anticipate any worsening in their financial situation over the coming year which is not too far from the record high of 97% in 2000. Inflation expectations fell to 2.8% for the year and 2.6% for the coming decade.
The survey was taken the day after the midterm elections which resulted in the Democrats winning control of the House of Representatives while Republicans kept the Senate.
Expert Outlook
“The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates,” according to Richard Curtin, director of the University of Michigan consumer survey.
“The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates.”
Curtin goes on to point out a balance in the recent trends, stating that while younger consumers are likely to favor positive income trends, they are also more likely to borrow and thus more likely to be the ones impacted by rising interest rates, while older consumers will tend to have a more disfavorable view on the impact of rising costs but will benefit from the increased rates on their savings.
Market Reaction
The price of gold has fallen considerably over the course of the day following a volatile crude oil market and a surging Producer Prices Index. While consumer sentiment remains high, the recent financial and consumer data all supports the Fed introducing a fourth rate hike this December which will likely have a bearish effect on gold.
Spot gold is now down -1.18% and trading at $1,208.45/oz with December Comex Futures down -1.3% and trading at $1,209.20.
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