Consumer Sentiment in U.S. Remained Elevated Before Elections

(Bloomberg) -- U.S. consumer sentiment remained elevated before this week’s midterm elections amid improved finances, though higher interest rates are dimming views of car and home purchases, according to a University of Michigan survey Friday.

The university’s sentiment index fell to 98.3 in a preliminary reading from 98.6 in October. That compared with the median estimate of 98 in a Bloomberg survey of economists.

Key Insights

• Even with the second straight decline, sentiment remains close to the highest since 2004, as Americans benefit from a tight labor market, gradually rising wages and greater take-home pay thanks to Republican-backed tax cuts.
• Americans are particularly pleased with their current situation; that gauge was little changed at 113.2. The survey’s expectations measure, showing consumers’ outlook for their personal finances and the economy, fell to 88.7, the second straight drop.
• Favorable attitudes toward buying vehicles fell to a five- year low amid higher prices and borrowing costs, while favorable home-buying attitudes matched the lowest in a decade.
• At the same time, consumers had greater certainty about job and income prospects. About 9 percent of respondents anticipated a worsening financial situation during the year ahead, not far from a record low of 3 percent in 2000.
• The survey reflects responses received from Oct. 24 to Nov. 7, the day after midterm elections that saw Democrats win control of the House of Representatives from Republicans, who kept their hold on the Senate. The report showed little change in the gap between Democrats and Republicans on economic expectations.

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• Consumers’ inflation expectations remain relatively contained, falling to 2.8 percent for the next year. For the next five to 10 years, respondents see inflation of 2.6 percent, within the range of the past year though up from the prior month’s reading.
• “The stability of consumer sentiment at high levels acts to mask some important underlying shifts. Income expectations have improved and consumers anticipate continued robust growth in employment, but consumers also anticipate rising inflation and higher interest rates,” according to Richard Curtin, director of the University of Michigan consumer survey.
• Curtin projects inflation-adjusted consumer spending to grow 2.6 percent in the next 12 months

--With assistance from Chris Middleton.

To contact the reporter on this story: Katia Dmitrieva in Washington at edmitrieva1@bloomberg.net

To contact the editors responsible for this story: Scott Lanman at slanman@bloomberg.net, Brendan Murray

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