The stock market alone cannot carry the economy as consumers rail against job losses, high prices and employment anxiety.
While consumer sentiment and other surveys tend to be soft data, as compared to earnings reports and payrolls it’s important forward looking data, which should be on our radar. The University of Michigan Consumer sentiment survey is a monthly reading - A reading below 50 signals weakness in the economy.
The October reading was terrible at just 50.3, dropping 3.3 points from the previous month, and a hair above a June 2022 reading of 50! when the Ukraine war was raging and the Fed had started their tightening cycle to combat raging inflation. A sentiment that mirrors that much angst was a surprise and all except one analyst came close to that forecast.
[caption id="attachment_6164" align="alignnone" width="640"]
Consumer_Sentiment[/caption]
Why the angst? SHUTDOWN, INFLATION and JOB LOSSES weighed heavily on consumer’s minds as they struggled with missing paychecks and higher prices.
Adding insult to injury, current economic conditions also slumped 6.3 points to a record low of 52.3 as consumers agonized about the length of the government shutdown. Nobody was spared, the negativity was spread across age, income and political cohorts, and political affiliations. For non-republicans confidence slid to the lowest in data back to 1984. In perhaps the sole positive spot, consumers expected inflation to ease over the longer term to 3.6% - still a very high number, but a trifle better. Not surprisingly, investors were the only cohort that didn’t seem completely pessimistic. Let's see how that changes with the 5% drop in the Nasdaq and the blowout in Crypto.
“Consumers perceive pressure on their personal finances from multiple directions,” Joanne Hsu, director of the survey, said in a statement. “Consumers also anticipate that labor markets will continue to weaken in the future and expect to be personally affected.”Fears about unemployment jumped this month, with 71% of respondents to the university’s survey expecting it to rise in the year ah“Moreover, consumers’ expectations over their own probability of job loss worsened this month, reaching the highest reading since March 2025,” Hsu said.
“While any recovery when the shutdown ends would leave sentiment low by historical standards, we still expect fairly healthy consumption growth this quarter and into next year, as the link between sentiment and spending has been weak in recent years,” Thomas Ryan, North America economist at Capital Economics, said in a note.
[caption id="attachment_6168" align="alignnone" width="640"]Consumer_Sentiment_Continues_To_Weaken[/caption]
Consumers also complained about current personal finances, and were reluctant to buy any big ticket items. You can’t be positive when you’re worried about losing your job: As we can see from the charts, buying conditions for durables were at their weakest, and the average chances of losing a job shot up to a level seen during COVID -19.
The weak hiring with ADP reporting only 42,000 new jobs, and the large layoffs explain why consumers remain pessimistic, and worse their index have also dipped to a six-month low of 49.
I don't expect sentiment to improve as long as the government remains shutdown, clearly the stock market riding on overpriced artificial intelligence stocks alone cannot carry the economy.
