Consumer Sentiment Falls to a Five-Month Low as Cost-of-Living Frustration Grows

Americans are feeling gloomier about their finances this fall, and they expect prices to keep climbing.

Americans are feeling worse about money this fall than at any point in the past five months. The University of Michigan's closely watched consumer sentiment index fell to 46.3 in its preliminary October reading, released on Friday, Oct. 9. That is down from 48.1 in September, and it came in below what Wall Street economists had expected.

Consumer sentiment is a monthly survey that asks people how they feel about their own finances, business conditions and the economy as a whole. A lower number means people are more pessimistic. It matters because consumer spending drives a large share of the U.S. economy, and worried shoppers often cut back.

"Frustration over cost-of-living continues to mount," said Joanne Hsu, the director of the survey, according to Yahoo Finance.

What the survey found

The drop was driven mainly by how people feel about right now. The survey's measure of current conditions fell to 44.7 from 50.9 in September. People's outlook for the future held up a little better, with the expectations index at 47.3.

The survey also asks people how fast they think prices will rise. Over the next year, consumers now expect inflation of 4.7%, up from 4.6% last month. That figure was just 3.4% in February, when the Middle East war and the energy shock that followed began, according to Yahoo Finance. Longer-term expectations also ticked up, to 3.5% from 3.4%, and remain above the 2.8% to 3.2% range seen in 2024.

Inflation expectations matter because they can become self-fulfilling. When people expect higher prices, workers may push for bigger raises and businesses may raise prices sooner, which can keep inflation going. The Federal Reserve watches these numbers closely.

Not every group felt the same way. Hsu said Democrats and Republicans both became more optimistic this month, but independents grew more pessimistic, which offset those gains. Sentiment also fell among lower-income consumers and people with smaller stock portfolios, who have less cushion to absorb rising prices.

Why people are worried

Survey respondents pointed to several sources of stress. Gas prices have risen by more than $1.50 a gallon on average since the war began and have stayed above $4 since mid-summer, according to AAA figures cited by Yahoo Finance. Consumers also mentioned worries about the national debt, which is now above $40 trillion.

Borrowing costs are another sore spot. The 10-year Treasury yield, which influences rates on mortgages and other long-term loans, has climbed to its highest level in more than two decades. The average 30-year fixed mortgage rate rose to 7.4% last week, a three-year high, according to Freddie Mac. Higher rates have made people more pessimistic about buying big-ticket items like homes and cars.

What this means for your wallet

A sentiment survey doesn't change your bills on its own, but it is a useful signal of where the economy may be headed. When households feel squeezed, they tend to spend less, which can slow the economy. At the same time, rising inflation expectations may make the Federal Reserve more cautious about cutting interest rates. The Fed raised rates last month for the first time since 2023, and its next meeting is Oct. 27–28.

For your own budget, this may be a good moment to take stock. If gas, groceries and borrowing costs are stretching your paycheck, a few steps could help you stay in control:

• Review your last two months of spending to see where rising prices hit hardest.
• Build a small buffer in savings if you can, since higher rates also mean savings accounts may pay more.
• Consider paying down variable-rate debt, like credit cards, before rates rise further.
• Delay large purchases that require a loan if the timing is flexible.

The next big data point is the September consumer price index, due on Wednesday, Oct. 14, which will show how fast prices actually rose. A Reuters poll of economists expects a 3.6% annual increase. The University of Michigan's final October sentiment reading is scheduled for Oct. 23.

This article is for education only and is not financial advice. Everyone's situation is different.