Consumer Sentiment Unexpectedly Falls to Lowest Level in a Year

Before you go, we thought you'd like these...
Before you go close icon
While the manufacturing sector continued to expand and the U.S. budget deficit was less than expected in August, consumer sentiment unexpectedly hit a roadblock, falling 2.3 points in September to 66.6 -- the index's lowest level since August 2009.

A Bloomberg survey had expected consumer sentiment in September (preliminary) to rise to 70.0. Consumer sentiment was at 67.8 in July, 76.0 in June, and 73.6 in May.

A More Somber Economic Outlook

Richard Curtin, director of surveys for the Thomson Reuters/University of Michigan Surveys of Consumers, said the U.S. economy remains the 800-lb. gorilla in the room, as far as American consumer sentiment is concerned.

"Confidence edged downward in early September, as consumers judged prospects for the national economy less favorably," Curtin said, in a statement, Reuters reported.

September's preliminary consumer sentiment reading reflects upper-income U.S. consumers' concern about the fate of the 2001 Bush income tax cut, the survey indicated, according to Reuters. The entire sentiment index decline in September stemmed from households with incomes above $75,000.

Sponsored Links
In the preliminary September survey, the consumer expectations component fell to 59.1 from 62.9 in August. The expectations component reading was at 62.3 in July, 69.8 in June, and 68.8 in May.

The current conditions component was at 78.4 in September, essentially flat from August's reading of 78.3. It was at 76.5 in July, 85.6 in June, and 81.0 in May.

Meanwhile, the 12-month outlook took a major hit. Consumers' 12-month economic outlook plunged to 59 in September, down 10 points from 69 in August.

Inflation expectations decreased substantially -- perhaps driven lower as Americans sense modest price compromises by stores stemming from lack of demand. The one-year inflation outlook declined to 2.2% from 2.7% in August.

Economists, business executives, and policy makers monitor consumer sentiment because, historically, consumer attitudes correlate with decisions to spend. In general, rising consumer sentiment leads to increases in consumer spending, or the maintenance of a level of spending; falling consumer sentiment, the reverse. Consumer spending generally accounts for 65% to 70% of U.S. GDP.

Upper-Income Groups Become More Cautious

September's consumer sentiment reading understandably reflects an upper-income consumer stuck in neutral. Moreover, it's natural for these consumers to become more-guarded regarding the economy, given the unclear tax policy. If the 2001 Bush income tax cut is not extended, income taxes on these citizens will rise substantially -- something that would force budget adjustments for many, including revised consumption decisions.
Read Full Story

From Our Partners