US consumer sentiment deteriorates in October

Consumer sentiment in the US deteriorated in October, according to a preliminary reading from the University of Michigan.

The consumer sentiment index ticked down to 99.0 from 100.1 in September and 100.7 in October last year, missing expectations for a reading of 100.4.

Meanwhile, the current economic conditions index fell to 114.4 this month from 115.2 in September and 116.5 last October.

The index of consumer expectations declined to 89.1 in October from readings of 90.5 last month and in October 2017.

Survey of Consumers chief economist Richard Curtin said that even though consumer sentiment slipped, it remained at quite favourable levels and just above the average reading of 98.5 for 2018.

"The small decline was due to less favourable assessments by consumers of their personal finances. Unfortunately, the downward revisions in the rate of growth in household incomes were accompanied by upward revisions in the year-ahead expected inflation rate, weakening real income expectations. It should be noted that the sharp selloff in equities overlapped interviewing by only one evening, having virtually no influence on the early October data.

"In addition, there was no evidence of a spill-over from the Kavanaugh hearings to economic prospects. Indeed, confidence in the government’s economic policies rose in October to its highest level in the past fifteen years, reflecting the strong performance of the national economy. Most of the October gain was due to an upward adjustment by Democrats, although their evaluations were still well below the much more favourable evaluations of Republicans."

Capital Economics said the modest decline in the consumer confidence index still leaves it close to a 14-year high.

"Confidence hasn’t been a particularly useful guide to spending in recent years but, along with the continued strength of the labour market, it provides another reason to expect consumer spending growth to remain solid in the near term," said economist Andrew Hunter.

He said that while it's tempting to blame the recent weakness in the stock market for the drops in the indices, the preliminary survey ended before the sharpest falls over the past couple of days.

"Instead, the key factor was probably the gradual rise in gasoline prices in recent weeks, in line with the rally in crude oil prices, which was seemingly enough to outweigh the continued positive impact of the strong labour market," said Hunter.

Ian Shepherdson at Pantheon Macroeconomics said the expectations and current conditions components remain extremely high, consistent with real spending growth of about 4-12/%.

"That pace can’t be sustained because real income growth, after tax, is running at less than 3%, and we see no sign yet that people are willing to run down their saving rate to make up the difference. Note that expectations are sensitive to the stock market, so if the recent drop in prices is sustained, reported confidence will take a hit in the next month or two."