The University of Michigan's sentiment index fell to 46.3 in early October, with its gauge of current conditions down 12%. Expected inflation five to ten years out climbed to 3.5%, above its entire 2024 range.
October 9, 2026
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Households told the University of Michigan two things this month that rarely sit comfortably together: the economy feels weaker right now, and prices will keep rising for years.
Michigan's preliminary October index came in at 46.3. It stood at 48.1 last month and 53.6 in October 2025. Economists had expected 47.6. The reading is the lowest since May, when the index hit a record low of 44.8, and if it holds in the final release on Oct. 23, October would rank as the second-weakest month in the survey's history.
Where the drop came from
Almost all of the decline sat in how consumers judge their present circumstances. Households' assessment of present circumstances dropped 6.2 points to 44.7, a one-month slide of 12.2%. The expectations index moved the other way, rising a point to 47.3.
Survey director Joanne Hsu said "buying conditions for durables plummeted amid high prices and borrowing costs," and that sentiment "for lower-income consumers and those with smaller stock portfolios dropped steeply." Gains among Democrats and Republicans were offset by a decline among independents.
The inflation numbers
The inflation readings are the part policymakers will study. Year-ahead inflation expectations rose to 4.7% from 4.6%. That compares with 3.4% in February, before the conflict with Iran began. Expectations for the next five to ten years rose to 3.5% from 3.4%, above the 2.8% to 3.2% range they occupied throughout 2024. Each measure has now climbed two months in a row, to levels last seen in May.
Long-run expectations matter more to the Federal Reserve than the one-year figure, which tends to track gasoline prices. A reading that climbs above its recent range for two months running is the kind of drift officials who favor further rate increases have cited as a risk.
The market response
Treasury yields rose through the morning, led by shorter maturities. The five-year yield was up about 3.5 basis points near 5.03% in early afternoon trading and the two-year near 4.80%. Oil recovered over the same hours, so the move cannot be pinned on the survey alone.
Homebuilders, among the stocks most exposed to borrowing costs, fell. The iShares U.S. Home Construction ETF was down about 1.3% near $84.74, close to its 52-week low of $83.69. The average 30-year mortgage rate stood at 7.40% in Freddie Mac's survey released Thursday.
Two ways to read it
The first reading is that expectations are slipping their anchor. Long-run expectations are above their 2024 range for a second month, the one-year figure is 1.3 points above its prewar level, and that supports officials who want to keep raising rates.
The second reading is that the survey is telling a demand story more than an inflation story. Gasoline and the cost of living dominate what households report, durable-goods buying intentions collapsed, and a 12% fall in current conditions suggests spending pressure that would cool inflation on its own.
Next readings
September consumer prices arrive on Oct. 14, two days after a bond-market holiday. The Fed meets Oct. 27-28, and the final October survey lands on Oct. 23. A second month of 3.5% or higher in long-run expectations would strengthen the case for another increase; a retreat would strengthen the case that households are reacting to pump prices rather than resetting their view of inflation.