Consumer Sentiment Study Sees Jump in Inflation One Year Out

Consumers don’t think the pressures on the household budgets are going to abate anytime soon.

And certainly not in the next year.

The University of Michigan’s latest reading of consumer sentiment fell sharply in its preliminary October reading, sliding from September’s 68.1 level to a most recent 63. The view of “current” economic conditions was also lowered to 66.7, down from 71 last month.

But the expectations for inflation may — and perhaps should — give retailers and other merchants pause.

Consumers surveyed by the university see inflation a year from now at 3.8%. That’s higher than the 3.2% that had been individuals’ sights just last month.

In a statement that accompanied the data, Joanne Hsu, director of the University of Michigan consumer surveys, said: “Assessments of personal finances declined about 15%, primarily on a substantial increase in concerns over inflation, and one-year expected business conditions plunged about 19%.” Just this week, PYMNTS research detailed the fact that incomes are not matching inflation, an observation made by an overwhelming 85% of households.

Consumers, then, are likely gearing up for a tougher time making ends meet. That comes as the holiday season approaches, which PYMNTS Intelligence has found is a source of stress for two-thirds of U.S. consumers. A full 41% of consumers plan to use installment plans more heavily to help get their shopping done.

Earnings Season Pulls Back Curtain on Consumer Pressures

In the meantime, the first set of bank earnings underscore some of the lingering realities of living paycheck to paycheck and the macro impact of higher-for-longer interest rates.

During the Citigroup conference call, for instance, CEO Jane Fraser said: “The global macro backdrop remains the story of desynchronization. In the U.S., recent data implies a soft landing, but history would suggest otherwise, and we are seeing some cracks in the lower FICO consumers.”

Elsewhere in the call, she noted that “growth in spending is decelerating, and the consumer is more mindful what they spend on. Indeed, the affluent, who still have excess savings at their disposal, drove the growth in spending with a continued tilt to travel and entertainment.”

The company’s supplementals reveal 4% spending growth year on year on branded cards, while loans on those cards gained 12% through the same timeframe.

And in our own coverage of J.P. Morgan’s results Friday (Oct. 13), we reported that card spending was up 8%, while management said on the call that it expects the 2023 card net charge-off rate to be about 2.5%. That tally would represent a leap from the 1.4% seen a year ago. That outlook is driven at least in part by a “central case” view espoused by CFO Jeremy Barnum that there’s going to be a “a very mild recession,” with two quarters of negative GDP growth of half a percent and higher unemployment rates.

If, as we’ve found, that 36% of consumers who face seasonal stress are using credit cards to hurdle the challenges of the season, then the question remains as to what comes next when the new year dawns and the credit card hangover lasts well after the halls are decked, the glad tidings bestowed, and the bill comes due.