The University of Michigan's final September survey put sentiment at 48.1, a four-month low, and lifted long-run inflation expectations off a three-month plateau.
American households grew gloomier in September and more worried about prices, and the Federal Reserve watches the second change closely.
The University of Michigan's final consumer sentiment index for September came in at 48.1, down from 51.7 in August and 55.1 a year earlier. That is a 7% decline in a month and the lowest reading in four months. It was a little better than the preliminary 47.8 reported earlier in the month, which is why some summaries described sentiment as rising. Against August, it fell.
The inflation readings moved the other way. Consumers expect prices to rise 4.6% over the coming year, up from 4.0% in August. In February, that figure was 3.4%. Expectations for inflation over the next five to 10 years rose to 3.4% from 3.3%, where they had sat for three months.
"The short-run outlook for business conditions plunged amid renewed worries that elevated fuel prices and re-escalating trade disputes could pass through to the economy as a whole," said Joanne Hsu, director of the survey. She also noted "broad agreement across the political spectrum that the outlook for the economy has weakened."
The long-run figure
The one-year number tends to track what people pay at the pump, and gasoline and diesel prices remain elevated with Brent crude above $100 a barrel for much of the month. The five-year number is the one central bankers watch for signs that inflation is becoming embedded in how households plan. A 0.1-point move is small, but it breaks a plateau at a moment when the Fed has resumed raising rates.
Fed officials have offered different frames for the data. New York Fed President John Williams said on Thursday that short-run expectations had been more encouraging than long-run ones, and he called one more rate increase by year-end a reasonable expectation. Cleveland Fed President Beth Hammack said the same day that "the longer that high inflation persists, the more challenging and costly it can be to bring it back down."
Sentiment and spending
The survey sits awkwardly next to other data released Friday. Business orders for equipment jumped 1.6% in August, and the Atlanta Fed's GDPNow model raised its estimate of third-quarter consumer spending growth to 4.2%. Households are telling pollsters they feel worse while, so far, still spending.
That split frames the Fed debate. If rising expectations are the signal, the survey adds to the case for another increase in October. If weak sentiment is the signal, it could point to demand softening ahead, which would argue for caution. The August personal consumption expenditures report on Sept. 30 will show whether spending is starting to follow sentiment down, and October's preliminary survey will show whether the 3.4% long-run reading holds or climbs.