Consumer Sentiment in U.S. Fell in October to Nine-Month Low

Consumer sentiment in the U.S. fell in October to a nine-month low as the government’s partial shutdown and the debt-ceiling debate caused outlooks to sour.

The Thomson Reuters/University of Michigan preliminary consumer sentiment index of decreased to 75.2 this month from 77.5 in September. Economists in a Bloomberg survey projected a drop to 75.3, according to the median estimate.

Households are becoming pessimistic about the economy as the shutdown heads into a third week and the deadline looms for raising the debt limit and avoiding a default. Nonetheless, rising wealth, lower gasoline prices and a resilient job market are preventing confidence from slipping even more, indicating the economy can bounce back once lawmakers reach a compromise.

“Confidence is down a bit given the shenanigans in Washington,” said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York, and the top-ranked sentiment forecaster over the past two years, according to data compiled by Bloomberg. “The labor market has been improving, and hopefully this degree of turmoil in Washington is just temporary.”

Projections of the 68 economists surveyed by Bloomberg ranged from 65 to 80. The index averaged 89 in the five years leading up to the economic slump that began in December 2007, and 64.2 during the 18-month recession that ensued.

Stocks rose for a third day as lawmakers continued talks to raise the government’s debt limit to avoid a default. The Standard & Poor’s 500 Index climbed 0.2 percent to 1,695.23 at 10:30 a.m. in New York. It has gained 18.7 percent this year through yesterday, shoring up the personal finances of equity investors.

Claims Jump

A report from the Labor Department yesterday showed jobless claims rose last week to the highest level in six months. Applications for unemployment benefits jumped by 66,000 in the period ended Oct. 5 to 374,000, the report said.

Some of the increase resulted from the federal government’s partial closure, which initially placed about 800,000 civilian employees on furlough. Roughly 15,000 of last week’s jobless claims were made by non-federal workers whose employers lost government business, according to a Labor Department spokesman.

The Michigan sentiment survey’s current conditions gauge, which measures Americans’ view of their personal finances, rose to 92.8 in October from 92.6.

The index of expectations six months from now dropped to 63.9, the weakest this year, from 67.8 last month.

Americans forecast an inflation rate of 2.9 percent over the next year, the lowest since October 2010, compared with last month’s expectation of 3.3 percent. Over the next five years, they project inflation to reach 2.8 percent, compared with 3 percent last month.

Diverging Confidence

Other measures of consumer confidence have diverged recently, with a report yesterday showing the Bloomberg Consumer Comfort Index was little changed last week. Gains in measures of personal, finances and the buying climate helped make up for a drop in opinions about the state of the economy.

A Gallup index last week had the largest decline since the 2008 collapse of Lehman Brothers Holdings Inc. One-third of respondents in another Gallup survey pointed to “dysfunctional government” as the top problem facing the country, the largest share in 74 years of polling.

Lower fuel prices are giving households more latitude to spend. The average cost of a gallon of regular-grade gasoline fell to $3.35 on Oct. 6, the lowest since January, according to data from AAA, the country’s biggest motoring group.

Income Brackets

Even as cheaper fuel bolsters budgets, lower-income households aren’t benefiting from improved stock and property values. Discount retailers such as Family Dollar Stores Inc., based in Matthews, North Carolina, have expressed concern about disappointing holiday-season sales as confidence wavers.

“While many higher-income consumers are feeling better and more confident about the future, our core customer continues to struggle,” Michael Bloom, president and chief operating officer of Family Dollar, said yesterday on an earnings call. “They’re dealing with tepid job growth, higher taxes and reductions in government assistance programs.”