The University of Michigan's final October reading put sentiment at 48.0, the second-lowest on record. Year-ahead expectations rose to 4.7%. Views of buying conditions for big-ticket goods plunged 18%, on higher rates and affordability worries.
American households expect more inflation, and they have soured on buying the items that depend most on borrowing costs.
The University of Michigan's index of consumer sentiment came in at 48.0 in its final October reading, compared with 48.1 in September and a preliminary 46.3 earlier this month. Only May's 44.8 has been lower in the survey's history. The current-conditions index fell to 46.7 from 50.9, while the expectations index improved to 48.8 from 46.3. Sentiment is 15% below February, just before the Iran conflict began, the survey said.
The inflation numbers
Year-ahead inflation expectations rose to 4.7% from 4.6%. Long-run expectations climbed to 3.5% from 3.4%, a level the survey described as "notably higher than their 2024 range of 2.8% to 3.2%." Both readings are the highest since May, and both have now risen for two straight months.
Buying conditions for durable goods "plunged 18% on the basis of higher interest rates and rising concerns about the affordability of such purchases," the survey said.
A warning from inside the survey
The more striking document was a special report published alongside the data under the title "Risks of Entrenchment." In it, the survey's director, Joanne Hsu, wrote that "both short- and long-term inflation expectations have ticked up in recent months, exposing risks that elevated inflation expectations could become entrenched."
The report said current long-run readings well exceed the ranges seen in 2024 and in 2019. It also pointed to the upper tail of responses: the 75th percentile of long-run expectations and the share of consumers expecting inflation of 15% or more are both above their 2024 and 2019 ranges.
Hsu then reached for history. She argued that the 2022 inflation episode most resembled the late-1960s start of the Great Inflation, not its 1980s finale, and that the situation in 2026, after further supply shocks, "is very different," with a greater risk that expectations become entrenched. The report noted that the 1967 closure of the Suez Canal, the 1973 oil embargo and the 1978-79 Iranian Revolution each left year-ahead inflation expectations with a higher floor than the shock before. Long-run expectations were not consistently measured before 1981.
That reading is Hsu's interpretation, not a forecast. But it is an unusual warning from the people who run the survey, five days before a Fed decision.
Firms and households, moving apart
Friday's two releases describe the same economy from opposite sides. Businesses in S&P Global's survey are busy, hiring and raising prices. Households in Michigan's survey are near record gloom and expect those price increases to continue.
For the Fed, both point toward inflation risk. Where they diverge is demand. Rising prices met by strong spending would argue for tighter policy. Rising prices met by consumers who are souring on big-ticket purchases would make the call harder. Hsu's report noted that aggregate spending has so far been relatively resilient, so the survey describes a mood, not yet a pullback in spending.
What to watch
The Fed's decision on Oct. 28, September's PCE inflation data on Oct. 29, and the preliminary November Michigan survey on Nov. 6, which will show whether long-run expectations keep climbing.