October Consumer Sentiment Stumbles Over Slow Wage Growth

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The final University of Michigan Consumer Sentiment Index for October dipped from to a September reading of 100.1 to October’s 98.6. When the preliminary October index score was reported earlier this month, the index reflected a slightly smaller decrease to 99.0.

The October index is 1.5% lower month over month and 2.1% lower compared with October 2017. Economists polled by Bloomberg were expecting a September reading of 99.0.

The October index and subindex readings came in lower in every case when compared both to September and to last October.

The consumer expectations subindex fell 1.3% month over month to 89.3, and the current conditions subindex slipped from 115.2 to 113.1 (down 1.8%).

Year over year, the current conditions subindex is down 2.9%, and the consumer expectations subindex is down 1.3%.

The preliminary index score of 99 dropped by 0.4 points, the current conditions preliminary score dropped 2.1 points and the expectations index score dropped 1.2 points from the final September reading.

The survey’s chief economist, Richard Curtin, said:

The Consumer Sentiment Index has been higher thus far in 2018 (98.5) than in any prior year since 2000, which was the last year of the longest expansion since the mid-1800s. Importantly, stock price declines, rising inflation and interest rates, and the negative mid-term election campaigns, have not acted to undermine consumer confidence. Needless to say, consumers are not immune to these negative factors. The data only indicate that the tipping point toward escalating pessimism has not been reached. This resilience was primarily due to the prevailing belief that the economy would produce robust job growth during the year ahead, even if overall wage growth remained dismal. Consumers now place a higher value on job security compared with wage growth due to job losses in the Great Recession as well as the aging of the labor force. … Consumers’ reports have become more volatile and have exceeded actual job growth in recent years, whereas before 1980 consumers regularly underestimated the strength in the labor market. This may reflect the heightened attention accorded to every waver in job news in the current environment, while before 1980, job growth was the accepted norm and consumers were more sensitive to real wage growth. The pace of growth in real personal consumption can be expected to average 2.6% during late 2018 and into the first half of 2019. Increases in home and vehicle prices, rising interest rates, and decreases in the pace of growth in inflation-adjusted incomes have especially dimmed prospects for home and vehicle sales.