U.S. Consumer Sentiment Falls to 46.3 as Inflation Expectations Rise

U.S. consumer sentiment fell to 46.3 in the University of Michigan’s preliminary October survey, from 48.1 in September, as Americans raised their expectations for inflation over both the next year and the longer term. The October 9 reading left household confidence close to this year’s lows, with high prices continuing to weigh on assessments of the economy.

The headline index was down 1.8 points, a relatively small monthly shift compared with the deterioration in how respondents viewed current economic conditions. That measure dropped sharply, even as the survey’s separate index of expectations improved. The divergence shows why the latest figures cannot be reduced to a uniform worsening of every part of the consumer outlook.

The university’s preliminary October results put overall sentiment 13.6% below its level a year earlier. Survey director Joanne Hsu said Americans increasingly believe the economy has weakened since the beginning of the year, although expectations for personal finances and business conditions in the year ahead edged up. The October numbers are preliminary and may change when the final survey is released.

Current conditions weaken far more than expectations

The index of current economic conditions fell to 44.7 from 50.9 in September, a 6.2-point decline. It stood at 58.6 in October 2025. By contrast, the expectations index rose to 47.3 from 46.3, though it remained below the year-earlier reading of 50.3. The largest change was therefore in respondents’ assessment of the present, not in their collective predictions of what comes next.

Buying conditions for durable household goods were especially weak, according to Hsu, who pointed to high prices and borrowing costs. Those pressures affect decisions such as whether to replace a major appliance or finance another expensive purchase. A household may still expect its finances to improve somewhat over the next year while judging today to be an unattractive time to make a large purchase.

The overall result also concealed differences among respondents. Hsu reported small sentiment gains among Democrats and Republicans that were offset by a decline among political independents. Lower-income consumers and those with smaller stock portfolios registered particularly steep declines. The survey director linked that weakness to the limited financial resources those households have to absorb further price increases.

The distinction between the index’s level and its month-to-month change matters. In published survey guidance, the university has said a 4.8-point movement in the headline sentiment index is needed to meet its 95% statistical-significance threshold for a monthly change. October’s 1.8-point fall is smaller than that benchmark. The current-conditions decline of 6.2 points, however, is slightly larger than the six-point threshold the university has cited for that component.

That qualification does not make a 46.3 reading reassuring. It means the latest decline should not be overstated in isolation. Sentiment was 53.6 a year ago, and the October preliminary reading remains only modestly above May’s 44.8 level. The underlying message is sustained pessimism rather than evidence that confidence suddenly collapsed by a comparable amount in one month.

Inflation expectations rise at both time horizons

Consumers now expect prices to increase 4.7% over the next year, up from 4.6% in September. Longer-run inflation expectations rose to 3.5% from 3.4%. Both measures increased for a second consecutive month and reached their highest levels since May, the university reported. The shifts are small in percentage-point terms, but they extend a pattern of concern about future purchasing power.

The year-ahead measure was 3.4% in February, before the Iran conflict began, according to the survey director’s comparison. Longer-run expectations are also above the range of 2.8% to 3.2% recorded during 2024. These comparisons help explain why frustration with living costs persists even when some forward-looking sentiment questions improve from one month to the next.

Inflation expectations are not a measurement of price increases that have already occurred, nor are they a forecast that is certain to come true. They capture what surveyed households think will happen. The one-year reading reflects their view of nearer-term price pressure, while the longer-run figure tests whether they expect that pressure to persist beyond the immediate period.

For families operating on tight budgets, a continuing rise in expected prices can make a pay increase or a modest improvement in business prospects feel less valuable. That helps reconcile the apparent contradiction within October’s survey: respondents offered slightly better answers to some questions about the future, yet their overall assessments remained deeply negative. The October release does not establish how much of the inflation concern will translate into actual changes in purchases.

Consumer spending and sentiment are giving different signals

Recent government figures show why a weak confidence survey is not the same as a report of falling consumer spending. The Bureau of Economic Analysis said in its August personal income and outlays release that personal consumption expenditures increased $190.8 billion, or 0.9%, from July. After adjusting for prices, consumer spending rose 0.6% for the month.

The August figures also showed real disposable personal income unchanged from July and a personal saving rate of 4.1%. These are backward-looking measurements of income and purchases, not respondents’ opinions. They show that inflation-adjusted spending increased in August despite the unfavorable consumer mood evident in surveys around that period. They cannot establish whether households continued spending at the same pace in October.

BEA’s preferred personal consumption expenditures price index was up 3.4% from a year earlier in August, while the index excluding food and energy increased 3.0%. Those are observed inflation rates for the preceding 12 months. The Michigan survey’s 4.7% figure is an expectation for the coming year, so the numbers should not be treated as interchangeable or used to claim that inflation has already reached the level consumers anticipate.

For businesses, the difference between what households say and what they buy is important. The Michigan survey can reveal caution about large purchases before a change appears in official spending figures, but an index reading alone does not prove that demand is contracting. Income trends, employment conditions, prices and borrowing costs all affect whether pessimistic attitudes result in reduced outlays.

The university has scheduled its final October sentiment reading for Friday, October 23, at 10 a.m. Eastern time. BEA’s next personal income and outlays report, covering September spending and inflation, is scheduled for October 29. Together, those releases will provide an updated view of how households feel about the economy and what their recent purchases show.