In October, the University of Michigan’s Consumer Sentiment Index fell to 46.3 from 48.1 in September, leaving Americans more downbeat about their finances than at almost any point in the 74 years the school has asked. The figure missed the 47.8 reading economists polled by Reuters had forecast. If the preliminary number holds in final data due later this month, CNN reported, it would mark the second-lowest level on record.
That’s worse than the 1970s oil crisis. It’s worse than 9/11, the Great Recession, the Covid-19 pandemic and the inflation surge that followed it, according to CNN. Five of the index’s lowest readings have come within the past six months; May set the record low.
Who Is Feeling It Most
The survey’s measure of current economic conditions fell to an all-time low of 44.7, down from 50.9 in September. Reuters put the decline at 12.2%. Expectations improved only modestly, while high prices and borrowing costs bit into buying conditions for durable goods.
The pain isn’t evenly spread. Sentiment dropped sharply among lower-income consumers, people with smaller stock portfolios and independents. It rose among Democrats and Republicans, but stayed considerably below January’s level.
“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,” said Joanne Hsu, director of the university’s Surveys of Consumers. Jim Baird, chief investment officer at Plante Moran Financial Advisors, described “a sense of treading water financially.”
A K-Shaped Economy
Reuters described an economy resembling a K: higher-income households have benefited partly from strong stock-market performance, while middle- and lower-income households face strained budgets. A separate University of Michigan report found just under a third of consumers expected to spend as usual over the coming year on items that had seen large price increases. Fifty-four percent said they’d cut back, and about 16% said they’d stop buying altogether. Higher-income consumers were more likely to keep spending.
James Knightley, chief international economist at ING, told CNN that the top 20% of households, with annual income of $155,000 or more, hold more than 70% of wealth in America and account for 40% of all spending, citing Federal Reserve data. “As long as equity markets hold up, spending can keep going,” he said. But “if we were to experience a stock market correction, then the situation would change quickly.”
His numbers on buying plans are stark. Some 73% think it’s a bad time to buy a household appliance, 78% a vehicle and 87% a home. “These are all key drivers of economic activity,” Knightley said.
Energy Prices, Rate Hikes and Policy Approval
The US-Israeli war with Iran has raised energy prices and fanned inflation, CNN reported. Gas prices have climbed in recent months as a result. Inflation has kept running above normal. Borrowing got more expensive when the Federal Reserve raised interest rates in September for the first time in three years. Reuters said the central bank lifted its benchmark rate by 25 basis points, to a range of 3.75%-4.00%, and flagged further increases in the months ahead.
The odds of another hike this month faded after underwhelming September payroll gains and cooler-than-expected inflation readings for July and August. Economists still expect the Fed to raise rates in December.
Consumers’ one-year inflation expectations rose to 4.7% from 4.6% in September, up from 3.4% in February, before the war with Iran began. Five-year expectations ticked up to 3.5% from 3.4%. The Fed watches these figures closely. If people expect prices to keep climbing, CNN reported, they may spend sooner and seek higher wages, while businesses may raise prices to match, adding to inflation.
Approval of economic policy has slid too. In September, 35% said the government was doing a good job with the economy, compared with 62% in March, CNN reported. Hsu said the decline was notable among Republicans. The September Consumer Price Index is due the following Wednesday, and economists expect annual inflation to have risen to 3.6%, a four-month high.
Midterms Loom
The figures land weeks before the November 3 midterm elections, which will determine control of Congress. Reuters reported that President Donald Trump’s approval rating is at the lowest of his political career amid discontent over his handling of the economy. Baird said the weakness “may not be readily apparent in headline GDP data, but it’s likely to be very apparent as voters cast their ballots in the coming weeks.” Knightley said the reading “obviously doesn’t particularly bode well for the Republicans as we rapidly approach the midterm elections.”
Why This Matters:
Headline growth figures can hide how households actually live. For many families, especially lower-income ones with little stock wealth, this survey suggests the economy feels like a squeeze on groceries, fuel and loans. Spending is being carried by the top 20% of households, who hold more than 70% of the nation’s wealth, so a market correction could expose how thin the foundation is. Rising rates make borrowing costlier for those least able to absorb it, while energy-driven price pressure lands hardest on tight budgets. With the midterms days away, the gap between aggregate data and lived experience is becoming a question of democratic accountability: voters are judging whether policymakers are protecting people from rising costs.