Consumer Sentiment Dips in Early November -- Update

11/10/17 11:30 AM EST
By Harriet Torry 

A measure of U.S. consumer sentiment dipped in early November from last month's 13-year high, as respondents' expectations of current and future economic conditions declined slightly.

The University of Michigan on Friday said its preliminary reading on consumer sentiment was 97.8 in November, down from 100.7 in October. The October reading was the index's highest since early 2004. Economists surveyed by The Wall Street Journal had expected a preliminary reading of 100.0 in November.

The index remained at a high level despite the month-over-month decline. November's reading was the third-highest so far this year.

"An improving labor market was spontaneously mentioned by a record number of consumers in early November, and anticipated wage gains recorded their highest two-month level in a decade," said Richard Curtin, the Michigan survey's chief economist.

"Not surprisingly, households are still very upbeat," Stephen Stanley, chief economist at Amherst Pierpont Securities, said in a note to clients. The movements in November "were broadly limited and did not change the basic tenor of the survey results," he added.

Consumers' short-term inflation expectations ticked higher, an encouraging development for Federal Reserve policy makers who monitor expectations for inflation because they have the potential to feed into actual prices. The expected change in inflation rates over the next year was 2.6% in November compared with 2.4% in October. The expected rate of inflation over the next five years was 2.5% in November, unchanged for the fourth straight month.

Inflation has undershot the Fed's 2% annual target for months. The price index for personal-consumption expenditures slightly exceeded 2% in February for the first time in nearly five years but has since settled lower, and rose only 1.6% on the year in September. Officials including Chairwoman Janet Yellen have said current weak inflation likely reflects idiosyncratic, one-off developments.

"[S]uch disturbances are not a great concern from a policy perspective because their effects fade away as long as inflation expectations remain anchored," Ms. Yellen said in a speech Sept. 26.

The Fed is widely expected to raise short-term interest rates next month.

According to the latest Michigan survey, the expected higher borrowing costs "seem to be the right pre-emptive action, the critical issue is whether income gains will be sufficient to outweigh rate hikes in home and vehicle purchase decisions."

Write to Harriet Torry at harriet.torry@wsj.com

 

(END) Dow Jones Newswires

November 10, 2017 11:30 ET (16:30 GMT)

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