University of Michigan’s Final Consumer Sentiment Index for October 2021 Falls Month-Over-Month and Year-Over-Year

The University of Michigan today (Friday 10-29-21) released its Final Consumer Sentiment Index (CSI) for October. The Index of Consumer Sentiment declined to a reading of 71.7. This is down from a reading of 72.8 in September, a month-over-month decrease of -1.5% and -12.3% year-over-year (81.8 in October 2020).

The Current Economic Conditions declined to a reading of 77.7 in October down from a reading of 80.1 in September, a month-over-month decrease of -3.0% and -9.5% year-over-year (85.9 in October 2020).

Finally, the Index of Consumer Expectations declined to a reading of 67.9 in October — down from a reading of 68.1 in September, a month-over-month decrease of -0.3 % and down -14.3% year-over-year (79.2 in October 2020).

In a statement prepared for the preliminary release of the September CSI, Richard Curtain. Director of Surveys for the U of M said:

“Consumer sentiment remained virtually unchanged from its mid-month reading, gaining just 0.3 Index points, and just 0.1 Index points above the average in the past two months, and only 0.1 Index points below the April 2020 low. The positive impact of higher income expectations and the receding coronavirus has been offset by higher rates of inflation and falling confidence in government economic policies. Consumers not only anticipated the highest year-ahead inflation rate since 2008 in the October survey, but consumers also expressed greater uncertainty about the year-ahead inflation rate than any time in nearly forty years. Note that this was the first major spike in inflation uncertainty recorded outside of a recession. Even uncertainty about the long-term inflation rate was the highest in more than a decade. Declining living standards due to inflation were spontaneously mentioned by one-of-every five households, concentrated among older and poorer households.”

“The patterns of consumers’ reactions to recent rises in inflation represent the preconditions that can promote an escalating inflation rate during the year ahead. Consumers’ recognition of high and rising prices is near universal, so too is their desire to reestablish spending for a more traditional holiday season. People understand that the origin of inflation has been in the upheavals in supply lines and labor markets. The acceptance of higher prices was caused by swollen savings due to the record pandemic cash incentives as well as by Biden’s new social support programs. The declining resistance to price hikes among buyers will be joined by less resistance among sellers to hiking prices that will be justified by higher materials and labor costs. These reactions promote an accelerating inflation rate until a tipping point is reached when consumers’ incomes can no longer keep pace with escalating inflation. In the past inflationary era, one recession was insufficient to realign expectations; it required a series of boom-bust cycles, until the Fed’s Volcker finally defeated inflation by raising interest rates to record levels.”