American consumers feel worse about the economy than at any point in the past five months, according to the University of Michigan's preliminary October survey released Friday. The sentiment index fell to 46.3 from September's final reading of 48.1 — the third straight monthly decline — missing every Wall Street forecast.
"Frustration over cost-of-living continues to mount, as consumers across the political spectrum believe that the trajectory of the economy has weakened since the beginning of the year," said Joanne Hsu, the survey's director.
The 46.3 preliminary figure undershot all expectations: Reuters polled 47.8, the Wall Street Journal 48, and Yahoo Finance cited a 47.3 consensus. If it holds through the final October reading, it would be the second-lowest mark since the survey began in 1952 — behind only May 2026's record low of 44.8. CNN noted that five of the weakest readings in the survey's history have come in the past six months.
Year-ahead inflation expectations ticked up to 4.7% from 4.6% in September, while five-year expectations rose to 3.5% from 3.4% — both the highest since May. Hsu said the current reading "substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings."
Actual inflation, at 3.4% annualized through August, remains well above the Federal Reserve's 2% target — but consumers clearly feel prices rising faster than the official numbers suggest.
Democrats and Republicans both registered small sentiment gains this month, but those were fully offset by a decline among independents — a notable shift with midterm elections just 25 days away.
The steepest drops came among lower-income consumers and those with smaller stock portfolios. "Sentiment for lower-income consumers and those with smaller stock portfolios dropped steeply this month, groups that have fewer resources to weather increases in prices," Hsu said. Buying conditions for big-ticket durables "plummeted amid high prices and borrowing costs," according to the survey.
Media coverage pinned the slide on a double squeeze from energy and borrowing costs. Gasoline prices have surged amid the ongoing US-Iran conflict: AAA data shows the national average has risen more than $1.50 since the war began and stayed above $4 a gallon all summer.
Borrowing is no easier. The 10-year Treasury yield has climbed toward 6% — its first approach of that level since 2000 — while the 30-year fixed mortgage rate hit 7.4%, a three-year high, according to Freddie Mac. The Federal Reserve raised rates by 25 basis points in September, its first hike in three years. The national debt has topped $40 trillion.
Oddly, the job market itself looks resilient: unemployment stood at 4.2% in September, layoffs are rare, and consumer spending is still propped up by stock-market wealth, the Journal noted. Sentiment has decoupled from economic fundamentals.
Economists worry about a self-fulfilling loop: if consumers expect prices to accelerate, they buy ahead — and make the expectation come true. The final October reading lands later this month and will show whether this pessimism is bottoming out or still searching for a floor.