According to the sentiment index released Friday, 11th November, consumers are significantly less optimistic about the current status of the economy and the economy’s prospects due to elevated interest rates, a likely recession, and consistently increasing prices.

In November, the University of Michigan Survey of Consumers reported a value of 54.7, which was 8.7% lower than the estimated 59.9 value from the month before. The results were below the Dow Jones projection, which predicted that the figure would remain relatively unchanged at 59.5.

Meanwhile, the current economic conditions index experienced a decrease of 11.9% and plunged to 57.8. In addition, the Consumer expectations index plummeted 6.2% to 52.7. Subsequently, the annual headline index reading declined 18.8%, while the present conditions measure dropped 21.5%, and the future expectations indicator plunged to 17%.

Consumer Sentiment Influenced Federal Reserve to Reduce Interest Rate Spikes 

The Bureau of Labor Statistics stated in a released report that the consumer price index increased by 0.4% in just October, far less than the 0.6% initially predicted. The reports had sparked a ferocious rise on Wall Street, where speculation was high that the Federal Reserve could put the brakes on the interest rate spike cycles now that inflation appears to be waning significantly.

The Chief Investment Officer at Plante Moran Financial Advisors, Jim Biard, commented on the reports, explaining that heightened inflation, as well as elevated borrowing rates, are limiting household spending power. He said that numerous low-income homes struggle with higher prices which cut off necessary elective spending, cripple savings and facilitate more credit card debts. 

Biard added that the reports in October were not enough to improve consumer confidence which currently is in a significant decline. He said that although the economy may not be experiencing a recession, households who suffer from elevated prices and borrowing costs already experience their share of recession. 

Inflation Prospects Edge Higher 

 Inflation prospects have grown in November despite CPI results in October disclosing an annual price increase of 7.7% in contrast to its initial price mark of 8.2% the last month. In addition, inflation expectations for the next year increased to 5.1%, while inflation rates for the next five years rose to 3%, the highest point since June.

Most of these inflation results are excessive by historical standards, but they also come at a time the Federal Reserve raised its base interest rates by a 3.75% mark in March. The Chief North America Economist at Capital Economics, Paul Ashworth, commented that consumers had survived inflated prices this year, even with gas prices surging over $5 per gallon. He added that over time it would become increasingly difficult for consumers to cope, especially with crippling interest rates and drastically poor household savings rates.