Consumer sentiment dropped to its lowest levels in five months after consumers were concerned about interest rates climbing and sluggish economic growth. The survey, which was released Friday, showed consumers are remaining cautious about spending because of the uncertainty that remains in the economy.
The Thomson Reuters/University of Michigan report on consumer sentiment showed overall sentiment fell to 77.5 during September, which was down from 82.1 during August. This is the lowest final reading on record since April.
September’s figure was lower than what economists had anticipated, which was 78.0. It was higher, however, than a mid-month preliminary reading, which was at 76.8.
The possibility of a government shutdown and the need to increase the borrowing limit or go into default have reignited some worries about fiscal policy plus legislative gridlock.
“While few consumers expected a federal shutdown, complaints about government policies have risen, and more importantly, prospects for job growth have diminished,” survey director Richard Curtin said in a statement.
Other significant gauges that have pertinent economic data have also hit their lowest final readings since April. The index of current conditions fell to 92.6 while the gauge of consumer expectations fell to 67.8.
The Federal Reserve did decide to postpone the tapering of the bond buying program this month. Analysts do expect within the next few months that the tapering will begin. With the fear of tapering, long-term interest rates were pushed up more than a full percentage point since May. Mortgage rates for a 30-year term ended up hitting their highest levels in a year climbing to 4.80%.
Experts have said consumer sentiment could weaken even more if higher interest rates start to decrease the momentum of the housing revival. The housing revival has been one of the more significant bright spots in the nation’s economic recovery.
The one-year inflation expectation climbed from 3.0 percent to 3.3 percent. The 5-to-10-year inflation outlook climbed up to 3.0 percent from previously being at 2.9 percent.
Consumer sentiment plays a significant role in the overall economic outlook. When consumer sentiment drops, the public is spending less money and thus, the economy is not growing. A weakening consumer sentiment is not good for the economic outlook.
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