Final October Reading of Consumer Sentiment Disappoints Amid Weak 3Q Growth

Consumer confidence increased less than expected in October as wealthier households grow more concerned about volatility in financial markets.

The University of Michigan final consumer sentiment index for October, released Friday, came in at 90, lower than the preliminary reading of 92.1. The final September reading was 87.2. Economists surveyed by The Wall Street Journal had expected the final October index would edge up to 92.5.

The index climbed to 96.1 as recently as June, but signs of slower economic growth in the U.S. and turmoil abroad had eroded confidence. September’s measure was the lowest in 11 months.

“The entire October rebound from September was due to gains in confidence among lower income households, while confidence among households with incomes in the top third of the income distribution retreated a bit due to concerns about financial markets,” said Richard Curtin, Surveys of Consumers chief economist. “Nonetheless, the overall impact from volatile stock prices has been quite small.”

However, Mr. Curtin stressed how the overall impact from market volatility has been relatively small.

“Indeed, the average level of the Sentiment Index thus far in 2015 (93.1) is higher than any other year since 2004 (95.2). More importantly, future financial prospects were viewed more favorably by all households in October than anytime since 2007,” he said. “In addition, the expected long term inflation rate dropped to the lowest level in over a quarter century.”

The report comes as the Commerce Department said Thursday that third-quarter U.S. gross domestic product slowed to an annualized pace of 1.5%, down from 3.9% in the second quarter. Economists had forecast a 1.6% growth rate for the world’s soon-to-be second largest economy, but consumer spending saved the quarter from contraction. Consumer spending, which accounts for more than two-thirds of all U.S. economic activity, gained at 3.2% in the third quarter, though it was still a slowdown from the 3.6% gain during the prior three months.

“While these favorable trends will keep the pace of growth in consumer spending at 2.9% in 2016, consumers will continue to make increases in their buying plans contingent on the availability of price discounts and low interest rates,” Curtin added. “Indeed, it was consumers’ disappointment with available price discounts that was responsible for the small retrenchment in confidence in the last half of October.”