Late last week, the University of Michigan released its widely respected Index of Consumer Sentiment for an initial reading of how consumers were feeling about the state of the economy. It showed a marked drop from both the previous month’s (October) reading and last year’s November 2024 reading. Why the downward dive in sentiment? Most likely, this was due, at least in part, to the ongoing government shutdown (which may be resolved by the time you read this).
Read all about the dramatic downturn in Consumer Sentiment in November…
The University of Michigan’s Index of Consumer Sentiment (ICS) is one of two continuously operated monthly consumer surveys that offer a gauge of how consumers are feeling about the economy (the other is the Conference Board’s Consumer Confidence Index). Like the CCI, the ICS seeks to learn both how consumers are feeling about their current condition, as well as how the future looks to them at that moment.
While economists follow these surveys regularly, this year the ICS is particularly important. That is because with the current government shutdown, critical government economic data is neither being collected nor processed. That leaves economists in a data deficit and flying blind…anxiously seeking and relying on private data even more so than is normally the case.
Consumer Sentiment Dropped in Early November Survey
According to this latest survey, the ICS dropped in November to a reading of 50.3, down 6.2% compared to a reading of 53.6 in October. Perhaps more alarming, this latest reading is down almost 30% compared to the reading of 71.8 in November 2024 (-29.9%).
With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy. This month’s decline in sentiment was widespread throughout the population, seen across age, income, and political affiliation.
Joanne Hsu, University of Michigan’s Surveys of Consumers Director
Hsu noted that there was only one segment that was an exception to the overall findings: “…consumers with the largest tercile of stock holdings posted a notable 11% increase in sentiment, supported by continued strength in stock markets.”
Surprise! Economists Expected a More Modest Decline
Economists polled by Dow Jones had projected a consumer sentiment reading of 53.0, just down slightly from October’s 53.6. The reading hasn’t been this low since June 2022, back when inflation was at a 40-year high, according to a report by CNBC. And, as I mentioned above, this is the second-lowest reading since 1978.
The Current Economic Conditions sub-index that feeds into the ICS, saw its reading in November come in at 52.3, down a significant 11% from the reading of 58.6 in October, suggesting consumers are seeing a degradation of their economic status now. As far as their feelings for the future, the Index of Consumer Expectations dropped to 49.0, off 2.6% from a reading of 50.3 in October and 36.3% compared to a reading of 76.9 in November last year.
Not Just Low-Income Folks, Tighter Finances Impacting Middle Class Americans
Across the economy, segments of the population are increasingly dealing with tighter financial conditions. That’s certainly true for federal workers and people dependent on food assistance from the federal government. But it’s also likely increasingly true for middle income Americans.
Elizabeth Renter, Senior Economist at consumer finance website NerdWallet, to CNBC
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