Consumers remain tentative as uncertainty looms

September 29, 2023

Consumer sentiment was little changed in September, inching down a mere 1.4 index points from August, according to the University of Michigan Surveys of Consumers.

Sentiment has been essentially flat for the past three months, following two months with leaps in sentiment stemming from the substantial slowdown in inflation seen earlier this summer, says chief economist Joanne Hsu, director of the surveys. While consumers recognize the ongoing strength of labor markets and the improvements in the economy compared with last summer, they remain tentative about whether these improvements can be sustained.

“Consumers are understandably unsure about the trajectory of the economy given multiple sources of uncertainty, for example, over the possible shutdown of the federal government and labor disputes in the auto industry,” Hsu said. “Recent debt ceiling crises and government shutdowns have soured consumer attitudes toward the economy. With consumers already feeling tentative about the state of the economy, the consequences of a lengthy shutdown could be severe.”

Consumers note stalling of inflation slowdown

Relative to last month, a higher share of consumers mentioned high prices as a reason for poor buying conditions for durables and vehicles, as well as the erosion of their living standards. Consumers’ mentions of food or gas prices have also risen since June. In spite of these recent upticks, though, consumer views are broadly similar to just a few months ago, Hsu says. Indeed, consumers do not expect the recent elevation in oil prices will necessarily lead to increased gas prices in the year ahead.

Personal finances of consumers weaken slightly

Assessments of personal finances declined by about 6% as incomes weakened and expenses rose, both factors eroding the living standards of consumers. Signs of rising concerns about income and employment appeared throughout the survey across a variety of demographic groups. While a majority of consumers expect their incomes to rise next year, consumers believe any income increases will be small and will not keep pace with inflation, Hsu says.

Looking at labor markets more broadly, 36% of consumers expected unemployment rates to rise in the year ahead, up from 32% last month. Still, though, only 16.7% believed that unemployment will pose greater problems for the economy than inflation in the upcoming year; this is the lowest reading since November 2022.

Consumer Sentiment Index

The Consumer Sentiment Index fell to 68.1 in the September 2023 survey, down from 69.5 in August and above last September’s 58.6. The Current Index fell to 71.4, down from 75.7 in August and above last September’s 59.7. The Expectations Index rose to 66.0, up from 65.5 in August and above last September’s 58.0.

About the surveys

The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by phone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.