Consumer Sentiment Gets a Bump on Easing Interest Rates

Consumers are feeling a bit more positive, notably about “buying conditions,” as shown in the latest release from the University of Michigan’s Survey of Consumers.

The Friday (Oct. 25) release surveying consumer sentiment noted that October’s reading came in at the highest level since April 2024 — and is now more than 40% higher than had been seen at the most recent nadir, in June 2022.

The survey found that the Index level of 70.5 was higher than the 70.1 seen last month and, per Survey Director Joanne Hsu: This month’s increase was primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates.

“All year, consumers have repeatedly told us that the trajectory of the economy hinges on who becomes the next president,” Hsu said. “Given the close nature of the presidential race, many consumers will be updating their expectations of the economy after the election is resolved, and sentiment may be somewhat unstable in the months ahead as consumers form their views on what the next presidency will look like.”

As for inflation, the latest Index indicated that the share of consumers “spontaneously mentioning” the negative effect of high interest rates or tight credit on buying conditions for large purchases fell this month.

Consumer concerns over high interest rates for durable goods reached their lowest levels in two years, which will likely provide some support for consumers’ willingness to make these purchases in the months ahead, the release noted.

Inflation vs Income Growth: Still a Battle

But there’s some hint that things may be a volatile in the near term. Consumers’ expectations of income growth rose during October, per the University, but consumers expect inflation to “exceed income gains in the year ahead. This suggests that the fact that high prices remain the number one factor for the current state of their personal finances — spontaneously mentioned by 43% of consumers — will likely persist for some time.”

The grappling with inflation has shown up time and again in PYMNTS Intelligence’s own surveys on consumers: As detailed here, a PYMNTS Intelligence report, “Higher Perception of Inflation Drives Paycheck-to-Paycheck Consumers to Trade Down,” revealed that 70%  of consumers said their income has not kept up with inflation. This sentiment is particularly acute among paycheck-to-paycheck consumers, with 77% of those struggling to pay bills reporting their income hasn’t sufficiently offset rising costs. Even among those not living paycheck to paycheck, 61% said the same.

We note, too, that the sentiment discussed above applies to big ticket items — the durable goods that are commonly, say, household appliances, or other items that last years. These purchases are typically staggered over time by the average household.

In the meantime, as has been a staple of earnings reports from the likes of the big banks, and most recently, Capital One, consumer spending on credit cards has remained resilient.  But many retailers are taking no chances when it comes to shoring up and incentivizing holiday spending, as commerce behemoths such as Walmart and Amazon are rolling out more deals earlier.

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