Consumer sentiment fell in November and expectations for inflation rose, a sign that consumers are not feeling great about the economy.
The University of Michigan Consumer Sentiment Index plunged to 61.3 in November, down from nearly 64 in October, according to final numbers released Wednesday.
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Despite the drop from last month, it is an increase of eight percentage points from a year ago. This month’s index was a bit better than consensus estimates among economists for just over 60.
“While this marks the fourth consecutive month of declines, November’s reading reflects a balance of factors, some of which improved while others worsened,” survey director Joanne Hsu said. “More favorable current assessments and expectations of personal finances were offset by a notable deterioration in expected business conditions.”
Meanwhile, inflation expectations are on the rise — a discouraging sign for the Federal Reserve, which has been working to drive down inflation for over a year through a barrage of aggressive interest rate hikes.
Year-ahead inflation expectations rose to 4.5% in November, up from 4.2% last month. That is the highest reading since April of this year. Long-run inflation expectations rose from 3.0% last month to 3.2% in November. Notably, the last time that long-run inflation expectations were this high was 2011.
“These expectations have risen in spite of the fact that consumers have taken note of the continued slowdown in inflation,” Hsu said. “Consumers appear worried that the softening of inflation could reverse in the months and years ahead.”
Inflation has fallen over the past year. The most recent consumer price index data showed that headline inflation fell to a 3.2% rate for the year ending in October.
The Fed has been raising interest rates since March 2022, although it appears on track to have pushed interest rates as high as they will go during this tightening cycle. At 5.25% to 5.50%, Fed officials have hinted that they are at their terminal rate, although Fed Chairman Jerome Powell has left the door open to more hikes should inflation prove stickier than expected.
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Despite the higher rates, the broader economy has proven surprisingly resilient and has expanded much more than most economists had expected.
Gross domestic product growth, a relative measure of the country’s overall economy, increased to a red-hot 4.9% seasonally adjusted annual rate in the third quarter of this year, up from a still strong 2.1% the quarter before.
