Consumer Sentiment Becomes Dramatically Gloomier in November
Higher prices eroded consumer sentiment from a month back.
Consumers became a lot bleaker in November. The combination of higher interest rates and persistent inflation tanked their morale, the preliminary survey of consumers released Friday by the University of Michigan revealed.
The total index dropped 8.7%, from 59.9 to 54.7, yet the current index of economic conditions fell a lot more, by 11.9%.
” Consumer sentiment fell around 9% below October, nullifying approximately half of the gains recorded since the historic low in June,” stated survey director Joanne Hsu.
“All components of the index decreased from last month, yet buying conditions for durables, which had significantly improved last month, decreased most greatly in November, falling back 21% on the basis of high-interest rates along with ongoing high costs,” Hsu added.
The downbeat perspective was found generally across age, gender, income, and political affiliation. Significantly, expectations of inflation stayed roughly the same month over month.
Regardless of their mood, consumers got a welcome respite Thursday when the government reported that inflation stalled in October to a yearly pace of 7.7% from a month earlier when it was 8.2%. Core inflation, excluding often volatile food and energy costs, slowed down.
That might give the Federal Reserve room to reduce its aggressive campaign of increasing interest rates, with onlookers expecting a 50 basis point increase in December after four consecutive increases of 75 basis points. Market interest rates have already dropped, and mortgage rates fell by half a percentage point Thursday amid an accentuated rally in stocks and bonds after the consumer cost index data was released.
Declining consumer sentiment
On Thursday, Gregory Daco, EY Parthenon’s chief economist, said that goods prices boomeranged 0.5% in October, owing to a 4% rebound in gasoline costs. However, core commodities prices dropped 0.4%– connected for the biggest contraction outside of a recession since 1970– while food prices published their slowest monthly gain in 11 months.
Draco included that Service sector prices also rose a more tempered 0.4%, led by delaying real estate sector inflation with shelter costs up 0.8%. Excluding shelter costs, service prices dropped 0.1%. This is encouraging as the steep real estate market correction and quelling demand for services ought to soften inflationary pressures in the following 6 to 9 months.
Markets also most likely pranced on the completion of a controversial campaign for control of Congress. While the outcomes are still incomplete, the expectation is that Republicans may take the House with Democrats holding onto the Senate. That will undoubtedly put a break on huge spending and more fiscal stimulus to the economy, a factor some economists have attributed to the highest inflation in 40 years.
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