U.S. Consumer Sentiment Holds Near Record Lows as Inflation Expectations Rise

Americans’ view of the economy remained near its lowest level on record in October, even as the final University of Michigan consumer-sentiment reading improved from an earlier estimate. The index ended the month at 48.0, barely below September’s 48.1, while households raised their expectations for inflation over both the next year and the longer term.

The steady headline concealed a deterioration in how consumers judged present-day buying conditions. The survey’s current-conditions index fell to 46.7 from 50.9 in September, a much larger move than the one-tenth-point change in overall sentiment. By contrast, the expectations index improved to 48.8 from 46.3, indicating somewhat less pessimism about the future without much relief from today’s financial pressures.

The distinction matters for retailers and other businesses selling expensive household goods. Survey director Joanne Hsu attributed the drop in current conditions entirely to an 18% fall in respondents’ assessment of whether it was a good time to buy durable goods. Higher borrowing costs and the affordability of major purchases were behind those responses, the university said. That 18% figure describes a survey measure of buying conditions, not an 18% decline in actual sales.

Buying conditions deteriorate even as the headline index holds steady

In its final October survey results, the University of Michigan reported that sentiment was 10.4% below October 2025, when the index stood at 53.6. The latest 48.0 reading was also just 3.2 points above May’s 44.8, which the university identified at the time as a new historical low. October’s preliminary reading of 46.3 had pointed to an even weaker result, but the final estimate was revised higher as more interviews were included.

The university’s October breakdown helps explain why a virtually unchanged overall figure does not mean the pressures facing households have disappeared. Expectations for business conditions over the next year improved by about 14% during the month, according to Hsu, yet remained 16% below their level a year earlier. Americans were less negative about some future conditions while reporting greater difficulty making larger purchases now.

Financial strain had been building before the latest release. In September, 55% of respondents spontaneously mentioned high prices as a negative factor for their personal finances, up from 44% a year earlier, the university reported. It also found that rising interest rates had become a particularly important reason for unfavorable assessments of buying a home or vehicle. Those September findings provide context for October’s deeper decline in durable-goods buying conditions; they are not separate measurements from the October final survey.

The sentiment gauge is based on interviews about household finances, buying conditions and the outlook for the economy. It measures people’s assessments and expectations rather than purchases recorded at checkout counters. A weak index can signal pressure on demand, but it cannot by itself establish how much Americans spent in a given month. The gap between the current-conditions and expectations readings is a reason to examine what respondents say they plan to buy, not proof that consumer spending has already collapsed.

Inflation worries are showing up in household spending plans

The University of Michigan’s inflation-expectations figures also moved higher in October. Consumers expected prices to rise 4.7% over the following 12 months, up from 4.6% in September. Their expectation for annual inflation over the next five to 10 years rose to 3.5% from 3.4%. Both are survey forecasts expressed by households, not current readings of the Consumer Price Index or official predictions of future inflation.

There is more direct evidence of how consumers intend to respond to price increases in a separate University of Michigan research report released October 9. Based on 3,492 interviews conducted from June 23 through September 21, it asked what people expected to do over the next year when confronted with goods whose prices had increased particularly sharply. Only 31% expected to keep buying those items as usual. Another 54% said they would cut back, and 16% said they would stop buying them. The percentages are rounded, and these results predate the final October sentiment release.

The response varied sharply with household resources. Among respondents in the lowest third of incomes, 20% expected to keep spending as usual and 24% planned to stop buying the higher-priced items altogether. In the highest income third, 42% expected to carry on as usual and 9% said they would stop. The survey does not identify a fixed dollar cutoff for these income groups, which are based on the sample’s income distribution.

Asked what they were most likely to trim or postpone, respondents mentioned groceries and food, household goods, vehicles, restaurant meals and vacations. Food shopping is a useful example of the difference between changing buying habits and reducing total spending: a household can switch to a cheaper brand or substitute a lower-priced product without spending less on food overall. The university cautioned against treating intentions to buy fewer items with steep price increases as a forecast of a proportionate drop in total household consumption.

The separate research also found reluctance to finance big purchases with debt. Only 14% of respondents said it was acceptable to use credit for major purchases given their situation, compared with 24% who said it was acceptable to draw on savings. Those answers indicate attitudes toward possible financing choices, not the share of purchases actually financed by loans or savings. They offer another perspective on why the university found fewer respondents willing to commit to expensive durable goods.

The next test is whether weak confidence changes actual purchasing

The October result is not uniformly negative. The improvement in future expectations partly offset the slide in current conditions, and the final headline index was higher than the preliminary estimate released earlier in the month. But confidence remains considerably lower than a year ago, and the survey’s inflation expectations increased despite the modest improvement in the forward-looking component. Taken together, the readings show that an easing in some fears about the outlook has not erased immediate concerns about affordability.

The earlier spending-intentions research points to unequal room for maneuver: households with higher incomes were more able to keep purchasing items that had become expensive, while those with fewer resources were more likely to report plans to avoid them. Even there, intentions should not be confused with completed purchases. Consumers may trade down, delay a vehicle replacement or find ways to absorb higher costs, with different effects on the value and composition of spending.

For that reason, the most useful follow-up is not simply whether next month’s sentiment index rises or falls. Changes in buying conditions, inflation expectations and actual spending data would show whether October’s especially weak assessments of major purchases persist or are reflected in household behavior. The University of Michigan has scheduled its preliminary November sentiment release for Friday, November 6, at 10 a.m. Eastern Time.