Consumer Sentiment Rose 3.6% in September

Ann Arbor, MI, October 1, 2021-Consumer sentiment rose 3.6% to 72.8 in September from August's 70.3 rate, according to final results from the University of Michigan Survey of Consumers. 

This represents a 9.5% decline year over year. 

“Consumer sentiment edged upward in late September, although the overall gain still meant the continuation of depressed optimism, initially sparked by the Delta variant and supported by persistent inflation and unfavorable long-term prospects for the national economy,” says Survey of Consumers’ chief economist, Richard Curtin. “Consumers do not view economic conditions as conducive to establishing an inflationary psychology, a self-fulfilling prophecy. Instead, consumers have favored postponement due to what they still consider a transient spike in prices. While this reaction may well fade in the months ahead, the shift toward postponement of purchases has been so significant that it could not be quickly reversed. Indeed, favorable buying attitudes posted some small further declines due to complaints about prices for homes, vehicles, and durables, all of which were already near all-time lows. Even if transient, higher inflation has already decreased living standards, and further damage is anticipated as just 18% of all households anticipated income gains would be larger than the expected inflation rate (see the chart). While the decline in real income expectations has been tempered by more generous pandemic relief, the partisan wrangling over a debt extension of a few months is likely to only lengthen the period of uncertainty about federal policies. Market interest rates have also recently risen and those increases are likely to add additional restraints on consumer purchases.

“Two characteristics that facilitated the rise in inflationary psychology a half century ago was the widespread belief in personal financial progress as well as the expectation of escalating inflation rates over the longer term. Neither of those conditions are now true. The proportion of households who expected to be better off financially in a year fell to 30% in September, the lowest level since August 2016, and favorable financial expectations over the next five years fell to 44% in September, the lowest level in seven years. Annual gains in household incomes were just 1.5% in September, well below the expected 4.6% inflation rate; even for those under 45, expected income gains (3.3%) were below the anticipated inflation rate. Real income gains were expected by just 18% of all households in September, the lowest reading since February 2015.”