October 29, 2024

The final estimate of consumer sentiment for October rose 0.4 point to 70.5 after climbing 2.2 points in September.  Consumer sentiment has risen somewhat, but they continue to worry that inflation might remain higher than expected for a protracted period and are concerned about the result of the November election..”

Surveys of Consumers Director Joanne Hsu said, “Consumer sentiment lifted for the third consecutive month, inching up to its highest reading since April 2024. Sentiment is now more than 40% above the June 2022 trough. This month’s increase was primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates. The upcoming election looms large over consumer expectations. Overall, the share of consumers expecting a Harris presidency fell from 63% last month to 57% in October. Sentiment of Republicans, who believe that a Trump presidency would be better for the economy, rose 8% on growing confidence that their preferred candidate would be the next president. In contrast, sentiment declined 1% for Democrats. As usual, Independents remain in between, with a 4% gain in sentiment this month. Regardless of the eventual winner, a sizable share of consumers will likely update their economic expectations based on the results of the election.

Many consumers have been concerned by the fact that while their nominal earnings were rising, inflation was eroding their purchasing power and, as a result, wages in real terms declined for roughly two years.  They have begun to rise slowly in recent months, but the level of consumer real income remains roughly where it was prior to the recession and far below the level it would have been in the absence of the recession,

In addition, many consumer prices have risen sharply since the recession.  The Fed promised that the increase in prices would prove to be “temporary”.  That has not been the case.  This is particularly problematic because so many of those price gains are on necessary commodities like food, shelter, and transportation which hit lower income families the hardest.

Real consumer spending has risen 2.9% in the past year.  But with real disposable income rising at a 3.1% pace consumer spending can be sustained at its current pace forever.

The slower growth rate for inflation should allow the Fed to continue to ease.  We expect the funds rate to fall from 4.8% currently to 4.3% by the end of the year and continue falling to 3.3% in 2025..

Both the University of Michigan’s consumer sentiment index and the Conference Board’s measure of consumer confidence both show a moderate rebound in the past couple of months.  The two series can diverge from one month to the next, but the trends are similar.

GDP grew 2.8%% in the third quarter and we expect 2.5% GDP growth  in Q4.  .

Consumers’ assessment of current conditions rose 1.6 points from 63.3 to 64.9.

Consumer expectations for six months from now fell 0.3 points from 74.4 to 74.1.

Stephen Slifer

NumberNomics

Charleston, SC