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Consumer sentiment has plummeted to a three-year low as the ongoing government shutdown enters its second month, according to the latest University of Michigan survey. The November reading of 50.4 marks a sharp 6.2% decline from October and a staggering 30% drop from the same period last year.
The results caught economists off guard, as they had anticipated a slight improvement to 54.2. Instead, Americans expressed deepening concerns about their personal finances and future business conditions.
“With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy,” said Joanne Hsu, Director of Surveys of Consumers at the University of Michigan. “This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation.”
Only one demographic bucked the downward trend: households with substantial stock investments. The tech-heavy Nasdaq has surged 17% this year, driven by explosive growth in artificial intelligence stocks and other technology companies.
Michael Pearce, deputy chief U.S. economist at Oxford Economics, noted the importance of this wealth effect. “The top 20% of households by income drive 40% of consumer spending, and we think the wealth effect from the buoyant stock market has strengthened this year.”
This dichotomy between investor optimism and broader consumer pessimism creates a complex economic landscape as the crucial holiday shopping season approaches. Despite widespread consumer anxiety, the National Retail Federation recently projected holiday sales during November and December could grow up to 4.2%, potentially reaching the trillion-dollar mark for the first time.
Inflation expectations showed mixed signals in the survey. Short-term expectations inched up slightly to 4.7% from 4.6%, while long-run inflation expectations actually declined to 3.6% from 3.9% last month. This suggests consumers may see current price pressures as temporary, though still concerning in the immediate future.
Employment concerns emerged as a particularly troubling component of the report. James Knightley, chief international economist at ING, highlighted a dramatic shift in job market sentiment.
“Seventy-one percent of households now expect unemployment to rise over the coming 12 months while only 9% expect unemployment to fall,” Knightley explained. “That gives a net reading of 62% predicting higher unemployment versus 52% last month. A huge increase which has historically been the prelude to an ugly outcome for jobs.”
The government shutdown has complicated economic analysis by halting the release of official labor market data normally published on the first Friday of each month. Economists have turned to private sources, which indicate a “low hires, low fires” market where job seekers are taking longer to secure employment.
Some economists caution against overreacting to the survey results. Oliver Allen, senior U.S. economist for Pantheon Macroeconomics, suggested methodological factors might be influencing the data.
“These numbers should be taken with a grain of salt, given the likely temporary drag on confidence from the ongoing government shutdown, plus the Michigan survey’s switch to online rather than phone-based sampling last year, which seems to have introduced a structural break that produces more downbeat results,” Allen said.
The survey was conducted prior to Election Day, meaning any potential impact from the electoral outcomes is not reflected in these results. However, the continued shutdown appears to be weighing heavily on consumer psychology across demographic groups.
As the shutdown continues with no clear resolution in sight, economists will be watching closely for signs of whether this sharp decline in consumer sentiment translates into actual spending pullbacks during the critical holiday shopping season, which could have broader implications for economic growth heading into the new year.
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7 Comments
The 30% drop in sentiment compared to last year is staggering. This must be seriously impacting consumer spending and confidence in the economy. I wonder what policy measures the government could take to help restore consumer optimism once the shutdown is resolved.
It’s concerning that the decline in sentiment was so widespread across age, income, and political affiliation. This suggests the underlying economic factors are affecting consumers broadly, rather than just certain demographics. The shutdown appears to be taking a heavy toll on the national psyche.
Absolutely. When economic uncertainty and pessimism cuts across societal lines like that, it’s a clear sign of deep-rooted challenges that need to be addressed. Restoring consumer confidence will be critical for economic recovery.
Wow, consumer sentiment plummeting to 3-year lows is really concerning. The ongoing government shutdown must be taking a serious toll on people’s financial outlook and confidence in the economy. I wonder how long it will take for sentiment to recover once the shutdown is resolved.
It’s interesting to see that households with substantial stock investments are bucking the overall downward trend. The surge in AI and tech stocks seems to be providing a buffer for those investors. But the broader decline in sentiment across all demographics is quite worrying.
You make a good point. The divergence between stock market performance and consumer sentiment highlights how the benefits of the tech boom may not be reaching average households.
The fact that even a slight improvement was anticipated but failed to materialize indicates just how negative consumer sentiment has become. The ongoing political dysfunction in Washington is clearly weighing heavily on people’s minds. I hope a resolution can be found soon to start rebuilding that confidence.