Consumer Sentiment in U.S. Exceeds Forecast as Finances Improve

Updated on

Consumer sentiment climbed more than forecast in October as lower-income Americans projected wage gains will accelerate and falling energy prices helped stretch paychecks.

The University of Michigan’s preliminary consumer sentiment index for this month rose to 92.1, the first advance in four months, from 87.2 in September, a report showed Friday. The median projection in a Bloomberg survey called for 89.

The bottom third of the income scale projected their pay over the next year will increase by the most in more than a decade, and low inflation combined with cheap borrowing costs boosted plans to buy big-ticket items. Stabilization in financial markets also eased concern slowing growth overseas would cause the world’s largest economy to cool, even as consumers anticipated smaller increase in payrolls.

“Consumers have concluded that the fears expressed on Wall Street do not extend to Main Street,” Richard Curtin, director of the Michigan Survey of Consumers, said in a statement. “Continued job growth remains the key, especially since consumers have become more concerned that the pace of future job growth will slow.”

Estimates of the 64 economists in the Bloomberg survey ranged from 84 to 94. The gauge averaged 93.5 this year, through September, and 84.1 in 2014.

Consumer Expectations

The Michigan sentiment survey’s index of expectations six months from now climbed to 82.7 from 78.2, the month prior. The gauge of current conditions, which measures Americans’ views of their personal finances, rose to 106.7 in October from 101.2 last month.

Americans expected an inflation rate of 2.7 percent in the next year, down from 2.8 percent in September. Over the next five to ten years, they expected prices would rise 2.6 percent, matching the lowest since 2002, compared with 2.7 percent last month.

The bottom third on the pay scale projected incomes would rise 2.9 percent over the next 12 months, the most optimistic outlook since 1999.

The weakening in job prospects occurred mainly among middle-income earners, the report said.

Consumers showed a greater willingness to purchase big-ticket goods as buying plans were the most favorable since 2007. Cheaper goods and borrowing costs are convincing people to spend.

Americans, especially those with incomes in the top third, were also more inclined to use credit or dip into savings for major purchases.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE