The rising costs for food, gas and housing are reducing the purchasing power of consumers despite stronger wage growth.
Published on November 12, 2021
US consumer sentiment coll -sed unexpectedly in early November as Americans became increasingly concerned about rising prices and the inflationary impact on their finances.
The University of Michigan’s preliminary sentiment index fell to 66.8 from 71.7 in October, data released Friday showed. The November number lagged behind any projections from a Bloomberg poll of economists that called for an increase to 72.5.
The dwindling confidence reflects “an escalating rate of inflation and growing consumer belief that effective policies have not yet been developed to reduce the damage caused by rising inflation,” said Richard Curtin, director of the survey, in a statement.
Consumers expect inflation to rise 4.9% next year, its highest level since 2008, the report showed. They expect prices to rise 2.9% over the next five to ten years, unchanged from the previous month.
“One in four consumers reported an inflationary decline in their standard of living in November, with lower incomes and older consumers having the greatest impact,” Curtin said.
Rising costs for food, gas and housing are reducing the purchasing power of consumers despite stronger wage growth. According to the data, around half of all families expect inflation-adjusted incomes to decline in the next year. Sentiment numbers follow government data earlier in the week, which showed the highest annual inflation in three decades.
While consumers are increasingly concerned about the impact of inflation on buying conditions, household spending showed signs of improvement at the end of a weak third quarter.
“Looking to the future, the risk is overwhelming, sustained price increases are feeding the inflation psyche of consumers,” Bloomberg economist Eliza Winger said in a note. “In the short term, scarcity and prices should curb inflation-adjusted spending.”
President Joe Biden said in a statement earlier this week that fighting rising inflation was his “top priority” as he faced falling -proval ratings. The Michigan numbers showed a deep divide along the party lines. Republican sentiment fell 17 points, its lowest level on record, while Democratic sentiment fell 5.3 points.
The Michigan report showed that household purchasing conditions deteriorated sharply, with a value of 78 falling to its second lowest value by 1978. In the survey, higher costs for vehicles, durable goods and houses were more common.
24 percent of households expect things to get worse in the coming year, the highest value since June 2008, said Curtin.
The measure of current conditions fell to 73.2, the lowest value since 2011. A measure of future expectations fell to 62.8, which, according to the survey, was the weakest since 2013.
Americans are also more pessimistic about the outlook for the economy over the next five years. The university’s level fell to its lowest level since 2011.