Consumer sentiment fell off a cliff in October, which is no surprise given how scared Americans are feeling with the extended government shutdown and skyrocketing inflation. This negative sentiment represents the third consecutive month of declining consumer sentiment. These attitudes are important barometers of our nation’s overall economic optimism.
On Friday, the current government shutdown hit its 10th day. The heightened perception of risk caused by all this uncertainty surrounding federal enforcement has created a toxic atmosphere for consumers. The recent shutdown has thrown us back to the 35-day closure of early 2019. This feeds concern that consumer spending — the engine behind two-thirds of U.S. economic activity — could falter or even reverse course.
Now, the ongoing government shutdown is further straining the burden on consumers. They are in the midst of a downturn and a huge surge in inflation taking place. Recent consumer expectation surveys report year-ahead inflation expectations decreased from 4.7% in September to a reading of 4.6% in October. The continuing impact of inflation drives shopper sentiment. Retail sales fell in June, and consumer sentiment just hit its lowest possible levels in almost three years. This decline follows the largest one-time increase in inflation in 40 years.
This reveals that consumer sentiment has now deteriorated on a monthly basis for three straight months. This downward trend is a consequence of the policy changes that began with the Trump administration. The index of current sentiment is far below where it was in December – right before the start of Trump’s presidency. This sudden change marks the extreme end of a consumer confidence pivot spanning multiple years. This drop in sentiment is not small. It reflects a decline of more than 7 points from December 2018 to January 2019 during the last government shutdown.
The sudden shift in consumer sentiment has economists panicked. They view it as a key measure of the nation’s economic well-being. The new numbers confirm that concerns among American shoppers are becoming more prevalent, as they start to worry about their financial viability and the state of the economy. Long-run inflation expectations were unchanged from last month. Worries about employment and the business of government continue to loom even over positive signs about any economic stabilization.
