The October preliminary reading for the University of Michigan consumer sentiment index has changed little from the final September print – slipping to 55.0 from 55.1, but at least it is above the 54.0 consensus prediction. The breakdown shows current conditions rising 0.6 points to 61.0, while the expectations component dropped 0.5 points to 51.2. To give you some context, the average consumer confidence print over the past 25 years was 91.8, so the responses are rather gloomy. Moreover, we are at the same sorts of levels as during the GFC in 2008 and when inflation rose above 9% in 2022.
The details show the reason for such pessimism are worries about jobs, with 63% of households expecting unemployment to rise over the next 12 months. There are also weak readings for perceptions of household finances and comfort in retirement. The perceptions of “is government doing a good job fighting inflation and unemployment?” hit new lows with 66% saying government is doing a poor job and only 18% saying it is doing a good one.
Historically, the relationship between this measure of consumer sentiment and actual consumer spending hasn’t been as good as with the Conference Board’s measure, but the sentiment reading surrounding the jobs market does have strong performance regarding labour market outcomes.
The chart below shows the relationship between fear of job loss and the actual change in private payrolls. It is a lead indicator presumably because workers see and feel changes in the workplace before they show up in the data – Workers tend to know if there is a hiring freeze or some other cost containment measures come in and go on to presume that jobs may soon be trimmed. That has historically proven to be the right assumption, so this does not bode well for the outlook.