U.S. Consumer Sentiment Pares Gains as Economic Outlook Dims

(Bloomberg) --

U.S. consumer sentiment pared gains from earlier in October while remaining elevated, suggesting Americans’ spending will continue to support the economy despite weakness in manufacturing.

The University of Michigan’s final sentiment index rose to 95.5 from September’s 93.2, data showed Friday. The preliminary reading and median estimate of economists were both 96. The gauge of current conditions rose to 113.2 and the expectations index increased to 84.2, though that was down from an initial 84.8.

Key Insights

• A measure of consumers’ inflation expectations over the next five to 10 years matched a record low at 2.3%, though it was up from a preliminary 2.2%. Even so, the reading could be cited by Federal Reserve policy makers in supporting a third straight interest-rate cut, with risks that price gains could continue to miss the central bank’s 2% target. Analysts and traders expect a rate reduction next week.
• While consumer sentiment is still at a three-month high, the data showed Americans cooled on the economic outlook amid persistent trade tensions and global weakness. There is also a wide partisan gap between Democrats and Republicans. At the same time, elevated stock prices and low unemployment are keeping optimism relatively steady.
• A measure of buying conditions for household durable goods matched the highest level this year. Americans’ shopping is key to keeping the record-long U.S. expansion going as business investment cools and job gains slow. Third-quarter gross domestic product data next week are projected to show growth slowed in the period as consumer spending moderated.
• The Michigan data compare with the Bloomberg Consumer Comfort Index’s steady reading in the most recent week, with its subindex of the buying climate hitting a record high in data back to 1985. The Conference Board’s confidence gauge had dropped in September to a three-month low.

Official’s View

“The focus of consumers has been on income and job growth, while largely ignoring other news,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement. “To be sure, the multiple sources of uncertainty will keep consumers focused on potential threats to their prevailing optimism.”

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• Consumer expectations for inflation in the next year fell to 2.5% -- matching the preliminary reading -- from 2.8% in the prior month.
• The gauge of current personal finances matched the highest level since March, while expectations jumped for a second month.

--With assistance from Chris Middleton.

To contact the reporter on this story: William Edwards in Washington at wedwards29@bloomberg.net

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

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