With midterms approaching, Americans’ confidence in the economy is in a tailspin
Consumer Confidence Sinks as Midterm Election Nears
Qwenews.com – American consumers are growing markedly more pessimistic about the economy just as the country heads toward the midterm elections, despite broader indicators that have continued to point to economic resilience.
The University of Michigan’s preliminary consumer sentiment index dropped to 46.3 in October, down from 48.1 in September. If the figure is confirmed in the final release, it will become the second-lowest reading in the survey’s 74-year history. Only May recorded a weaker result, and five of the survey’s lowest readings have occurred this year.
The depth of the decline puts today’s public mood below levels seen during major periods of national economic and political strain, including the Vietnam War, the oil shocks of the 1970s, the aftermath of September 11, the Great Recession, the Covid-19 pandemic and the subsequent inflation surge.
“It just underscores how tough people are feeling out there, and it obviously doesn’t particularly bode well for the Republicans as we rapidly approach the midterm elections,” said James Knightley, chief international economist at ING.
Everyday Costs Are Driving the Mood
Recent months have given households several reasons for concern. Gasoline prices have risen, inflation has regained momentum and interest rates have begun moving higher again. Those developments can have an outsized effect on how families assess their finances because they are felt directly in everyday purchases, borrowing costs and plans for major expenses.
Consumers are especially wary of making large purchases. Knightley pointed to survey responses showing that 73% of consumers believe it is a bad time to buy a household appliance. The comparable figure was 78% for vehicles and 87% for homes.
“These are all key drivers of economic activity,” he said.
That hesitation matters beyond individual households. Demand for cars, homes, appliances and other costly goods supports activity across manufacturers, retailers, lenders, construction firms and related service businesses. A prolonged pullback in willingness to buy could weaken consumer spending, which remains a major source of US economic growth.
A Gap Between Spending and Sentiment
The weak mood may appear difficult to reconcile with economic measures that have suggested the overall economy remains in reasonable shape. Knightley said the disconnect reflects the growing importance of a “K-shaped” economy, in which higher-income households fare better and increasingly account for a large share of consumer spending.
Federal Reserve data show that the wealthiest 20% of households, defined as those earning at least $155,000 annually, own more than 70% of US wealth. Those households also represent 40% of total spending. Their financial position can help sustain consumption even while lower-income Americans feel increasingly squeezed by prices and borrowing costs.
“If the stock markets keep moving along quite nicely, we can keep these trends in play,” Knightley said. “But if we were to see a stock market correction at a time when you’ve still got stress elsewhere, that could really undermine the US growth story.”
The contrast highlights why headline economic data do not always match public sentiment. People with substantial investments may be better positioned to maintain spending when markets rise, while households with limited savings or little exposure to stocks can feel the impact of rent, food, fuel and credit costs more immediately.
Lower-Income Consumers Feel the Pressure
The October reading was pulled down primarily by deteriorating views of current economic conditions. That component fell 12.2% from September to an all-time low of 44.7.
Joanne Hsu, director of the university’s Surveys of Consumers, said sentiment among independents declined enough to outweigh improvements among respondents who identify as Democrats or Republicans. The sharpest losses were reported among lower-income households and consumers with limited stock-market exposure.
“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,” she said.
Political perceptions have also shifted. September’s survey found a decline in views of the government’s handling of the economy, including among Republican respondents. In March, 62% of respondents said the government was doing a good job on economic issues; by September, that share had dropped to 35%.
Inflation Expectations Remain a Concern
Consumers also expect inflation to worsen. Expectations for inflation over the coming year increased to 4.7% from 4.6% in September. In February, before the war with Iran contributed to higher gas prices, consumers expected inflation of 3.4%.
Those expectations are closely watched by the Federal Reserve because they can affect behavior across the economy. If households anticipate faster price increases, they may accelerate purchases and seek higher wages. Businesses facing stronger demand and rising labor costs may respond by increasing prices, potentially reinforcing inflationary pressure.
The Federal Reserve raised interest rates last month for the first time in three years, underscoring the importance of price expectations as policymakers weigh the risk of renewed inflation against the need to preserve economic growth.
The next major inflation update will arrive next Wednesday with the September Consumer Price Index. Economists expect annual inflation to have risen to 3.6%, which would be the highest rate in four months.
For voters, the issue is likely to remain intensely personal. Even where broad economic measures remain stable, confidence can continue to weaken when households believe that essentials are becoming less affordable and major purchases feel out of reach. With the midterms drawing closer, that divide between economic data and lived financial experience may become an increasingly important political force.
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