Key Takeaways
- The University of Michigan Consumer Sentiment Index fell to 50.3 in November, the lowest level since June 2022, while its survey results on current economic conditions were at the lowest point in the report’s 73-year history.
- While consumers had previously brushed off the government shutdown, this month’s results showed that the budget battle was weighing more heavily on people’s perception of the economy.
Consumers have been relatively unfazed by the U.S. government shutdown up until now, a closely watched survey revealed Friday.
The Michigan Consumer Sentiment Index fell to 50.3 in the preliminary reading for November, a low not seen since June 2022, when Americans were reeling from runaway inflation. Economists surveyed by The Wall Street Journal and Dow Jones Newswires were expecting a slight drop in the sentiment index from last month’s reading of 53.6.
Moreover, consumers’ assessment of current economic conditions was the lowest in the 73-year history of the survey conducted by the University of Michigan. The index is based on consumers’ opinions on both the current economy and on their expectations of future economic conditions.
Why This Matters for Consumers
Consumer sentiment can serve as a key indicator of the economy’s direction. People who are worried about prices, their jobs, or other conditions can react by reducing their spending or taking other actions that slow down economic growth.
While inflation worries persisted, the survey showed that the current government shutdown is also weighing on people’s perceptions of the economy. Survey results from early October showed that the shutdown hadn’t yet registered with the consumers. The preliminary survey concluded before this Tuesday’s election, which saw Democrats win several state and local races.
“With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy,” Survey Director Joanne Hsu said in a release.
Sentiment Decline Widespread, With Only Large Stock Owners Seeing Improvements
The decline in sentiment was widespread over age groups, income levels, and political affiliation, Hsu said. The only group to show improvement was large stockholders, who have watched a series of new market highs over the survey period.
The survey results come as the government shutdown enters its 38th day. Funding for most government agencies and programs expired on Oct. 1 when congressional Republicans and Democrats couldn’t reach an agreement on how to fund the government.
So far, one of the main consequences of the shutdown has been a freeze on government economic data, since the workers who conduct the information gathering aren’t at work.
But more areas of the economy are starting to be affected, including air travel, as weak staffing levels for unpaid air traffic controllers prompted officials to reduce air traffic by 10% at 40 airports. The shutdown is also threatening the delivery of food assistance payments.
Inflation expectations also ticked higher in the survey, which is important because the Federal Reserve closely considers people’s feelings about price pressures when it makes decisions on interest rate moves.