Despite a decent 2% rise in third-quarter GDP growth and plunging initial jobless claims, consumer sentiment dipped to an 11-month low of 67.7 in its final October reading, down from the preliminary 67.9 October tally, and 68.2 level in September.

A Bloomberg survey had expected sentiment to rise to 68.0 in October. The index was 68.9 in August, 67.8 in July, and 76.0 in June.

A General Mood of Economic Discontent at Election Time

Richard Curtin, Thomson Reuters/University of Michigan director of surveys, said there's a general mood of discontent in the nation, stemming from the recent recession that resulted in massive job losses and an unemployment rate near 10%.

"Residents of nearly all local areas expressed economic discontent," Curtin said in a statement. "It would not be surprising for consumer confidence to rebound following the election; it would be surprising if those gains proved to be more than temporary."

Economists, business executives, and policy makers monitor consumer sentiment because, historically, consumer attitudes have been correlated with consumer decisions to spend. In general, rising consumer sentiment leads to increases in consumer spending, or the maintenance of a level of spending; falling consumer sentiment leads to the reverse. And historically, consumer spending has accounted for 65% to 70% of U.S. GDP.

The consumer expectations component of the survey inched higher to 61.9 from 60.9 in September. However, it is still lower than June 69.8 reading. The current conditions component plunged to 76.6 from 79.6 in September.

One bright spot concerned the 12-month economic outlook. It rose to 67 in October from 61 in September.

The one-year inflation outlook rose to 2.7% in October from 2.2% in September, and the five-year inflation outlook was at 2.8% in October, from 2.7% in September.

In general, it appears that most consumers recognize the economy has improved, with the rise in both the Dow Jones Industrial Average and corporate earnings reflecting this, but their outlook remains subdued, due to a lack of progress on jobs and the unemployment rate.

Moreover, if history is an indicator, consumer sentiment is not likely to rebound in a sustained way until Americans become convinced that sustained job growth in the U.S. economy is occurring, and that they're likely to see an increase in their income in the year ahead.

Chicago PMI Unexpectedly Rises

Separately, business activity unexpectedly accelerated in October, as the Institute for Supply Management-Chicago Purchasing Managers' Index rose to 60.6 from 60.4 in September, Bloomberg News reported Friday. Readings above 50 indicate an expansion; below 50, a contraction. A Bloomberg survey had expected the index to dip to 57.6 in October. The index was at 56.7 in August.

Increase your money and finance knowledge from home

Economics 101

Intro to economics. But fun.

View Course »

Asset Allocation

Learn the most important step in structuring an investment portfolio.

View Course »

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:
punnster

If you are worried how things will go after the first of the year, wait for the HUGE surprise in April. Remember I said that.

October 30 2010 at 1:36 AM Report abuse +1 rate up rate down Reply