American consumer sentiment fell this month, despite revised numbers in a newly released survey.
The consumer sentiment index for November was lower than expected, and was revised to 56.8 from initial projections of 54.7 percent, according to the University of Michigan on November 24.
The results were better than most economists expected with an upward revision, but still below October’s reading of 59.9, despite better numbers.
“Consumer sentiment fell 5% below October, offsetting about a third of the gains posted since June’s historic low,” said the survey’s director, Joanne Hsu.
“Along with the continued impact of inflation, consumer attitudes have also been weighed down by rising borrowing costs, declining asset values, and weakening labor market expectations,” he said.
There was almost a 6 percent decrease between October and November in the current index of economic conditions and a slight decrease in annual inflation expectations.
Current economic conditions fell to 58.8 in November from 65.6 in October, while the index of consumer expectations fell to 55.6 from 56.2.
The gauge, which measures consumers’ perception of their own financial situation and the current state of the economy, stood higher than a year ago at 73.6.
“Uncertainty in these expectations remains at a high level, indicating that the overall stability of these expectations is not necessarily sustainable,” Hsu said.
Consumer Sentiment Falls Due to High Borrowing Rates, Higher Prices
Approximately 60 percent of consumers have already reduced their spending in response to inflation and many are planning further spending cuts in the next 12 months, according to a separate survey by the University of Michigan.
Many respondents said they are more reluctant to borrow for large purchases, which suggests a sharp reduction in spending, as consumers begin to draw more from their savings to pay bills.
About 8 percent of households reported that they would be less likely to buy items with large price increases in the next year, while another 51 percent of families said they were cutting back on their overall spending.
“In addition to the ongoing impact of inflation, consumer attitudes have also been weighed down by rising borrowing costs, declining asset values, and weakening labor market expectations,” according to Hsu.
Consumer sentiment improved at the beginning of the fourth quarter, as fuel prices fell from record highs but the prices of essentials began to rise.
Higher prices and a corresponding jump in borrowing rates led to slower economic growth, causing many households to become more conservative about future financial plans.
Inflation, Interest Rate Increases Tilt Economy Toward Serious Recession
Meanwhile, Americans’ outlook for inflation fell to 4.9 percent in November from 5.0 percent the previous month.
Five-year long-run inflation expectations rose slightly to 3 percent this month from 2.9 percent in October.
The Federal Reserve pays close attention to inflation expectations as a key measure of future price trends.
However, the chance of a serious recession is increasing, as the Fed continues its aggressive rate hike policy to control high inflation.
Based on data from the Consumer Price Index from October, the latest annual inflation rate is at 7.7 percent, which the central bank hopes will decrease to 2 percent by the end of 2023.
This week, a Commerce Department report saw orders for durable goods, such as appliances and cars, falling this month after making gains in October, falling 19 percent from September levels due to high interest rates and rising costs.