American consumers turned more pessimistic in early October, with a closely watched sentiment gauge falling to 46.3 in preliminary data and the measure of current economic conditions dropping to 44.7, the lowest reading on record.
The decline was driven by how households feel about their own finances right now rather than by fears about the distant future. Views of buying conditions for big-ticket items weakened, and the share of consumers describing jobs as hard to get rose to about two-thirds in related labour readings.
Inflation worries remain stubborn. Households’ expectations for price growth over the coming year edged up to 4.7 percent, suggesting that years of elevated prices have left a lasting mark on confidence even as the actual pace of increases has cooled from its peak.
There was one partial offset: expectations about the future slipped less sharply, helped in part by lower petrol prices, which tend to lift moods quickly because they are visible every week. Economists cautioned, though, that a single month of softer expectations does little while present-day assessments sit at record lows.
The sour mood matters because consumer spending powers roughly two-thirds of the US economy. Retailers heading into the holiday season will be watching whether households keep spending despite saying they feel worse, a split that has defined much of the post-pandemic economy.
The survey has been running for decades and is watched by the Federal Reserve as an early warning of how households may behave. Economists note that sentiment and spending can part ways for long stretches, especially when unemployment is low, but they also warn that persistently gloomy consumers eventually trim discretionary purchases.
With the holiday quarter approaching, the gap between what shoppers say and what they do will be tested at the till. This month’s final reading, due later in October, will show whether the early pessimism deepens or proves to be a blip.
