Consumer Sentiment Plunges on Inflation, Rate-Hike Fears

Consumer sentiment in U.S. unexpectedly fell by the most in a year amid expectations that inflation and interest rates will rise, according to a University of Michigan report Friday.

Highlights of Michigan Sentiment (November, preliminary)

• Sentiment index dropped to 97.8 (est. 100.8) from 100.7
• Current conditions gauge, which measures Americans’ perceptions of their finances, fell to 113.6 from 116.5
• Expectations measure decreased to 87.6 from 90.5

Key Takeaways

Even with the decline, sentiment was the second-highest since January, reinforcing other reports that Americans remain optimistic about employment and the economy.

Anticipation of a pickup in inflation and higher interest rates weighed on the gauge, although a record number of Americans “spontaneously mentioned” an improving jobs market, the report said. Favorable references to more jobs and less unemployment tied the highest level ever recorded, in 1984 and 2012.

The results indicate consumers are evaluating whether income gains would be enough to outpace the expected increase in borrowing costs for home and car purchases, according to the report.

Official's Views

“While the majority judged current conditions in the economy favorably and consumers anticipated continued growth on balance, consumers judged the outlook less satisfactory, and were equally divided about whether the expansion would last another five years,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

“We’ll have a pretty good holiday season, and I think retail sales will be fairly good,” he said in a conference call after publication of the report. “Income, jobs and wealth are moving in the right direction, and that should make a favorable Christmas season for all concerned.”

Other Details

• Consumers saw the inflation rate in the next year at 2.6 percent, up from 2.4 percent the prior month
• Consumers expected an annual income gain of 2.1 percent for the second straight month, the best two-period average since 2008
• Inflation rate over next five to 10 years held at 2.5 percent
• Six in 10 consumers saw stock-market gains as likely in the year ahead
• References to low mortgage rates fell to 32 percent in early November from 40 percent last month