Americans are feeling worse about the economy, and the main reason is the same one they keep giving: everything costs more. The University of Michigan’s closely watched consumer sentiment index fell to 46.3 in early October, down from 48.1 in September. It was the third monthly drop in a row and left the index close to the record low it hit in May.
“Frustration over cost-of-living continues to mount,” said Joanne Hsu, who directs the university’s Surveys of Consumers.
Here’s what the latest reading shows, why people are gloomier and what it could mean for spending as the holidays approach.
The Numbers at a Glance
- Overall sentiment: 46.3 in the preliminary October reading, down 1.8 points from September’s 48.1. Economists had expected a reading in the 47s.
- Current conditions: 44.7, an all-time low for the survey, down from 50.9 in September.
- Expectations: improved modestly, according to Reuters.
- Year-ahead inflation expectations: 4.7%, up from 4.6% in September and 3.4% in February.
- Long-run inflation expectations: 3.5%, up from 3.4%.
For perspective, sentiment stood at 55.1 in September 2025. September’s reading this year was already 15% below where it was in January.
What the Index Measures
The University of Michigan surveys consumers every month about their finances, business conditions and buying plans, and it publishes a preliminary reading early in the month and a final one later. The headline index blends two parts: how people feel about conditions right now and what they expect over the coming months and years.
The index doesn’t track what people actually buy. It tracks mood. That matters because mood and spending don’t always move together, a point we come back to below.
Why People Feel Worse
Prices, Especially Energy
The biggest driver is the cost of living. Energy prices jumped after the U.S.-Israeli war with Iran began in February, and that has fed into broader inflation. According to AAA figures cited by Yahoo Finance, gas prices have climbed more than $1.50 a gallon on average since the war began and have stayed above $4 since midsummer.
Consumers expect more of the same. Year-ahead inflation expectations have risen from 3.4% in February to 4.7% now. Long-run expectations, at 3.5%, remain above the 2.8% to 3.2% range seen in 2024.
Borrowing Got More Expensive
Interest rates are adding to the squeeze. The Federal Reserve raised its benchmark rate by a quarter point to a range of 3.75% to 4.00% in September, its first hike in three years, and signaled that more could follow. The average 30-year fixed mortgage rate rose to 7.4% this week, a three-year high, according to Freddie Mac. Yahoo Finance also pointed to a rising 10-year Treasury yield and worries about a national debt now above $40 trillion.
Higher prices and higher borrowing costs show up together in one part of the survey: buying conditions for big-ticket durable goods, like cars and appliances, plunged this month, according to Reuters.
Who Feels It Most
The drop wasn’t spread evenly. Sentiment fell most among people with less room to absorb rising prices, including lower-income consumers and those with smaller stock portfolios.
The survey also tracks political affiliation. Hsu said sentiment among Democrats and Republicans ticked up this month but was offset by a decline among independents. Reuters noted that both party groups remain well below their January levels.
Does Gloom Mean People Will Stop Spending?
Not necessarily. Weak sentiment readings haven’t always translated into weak spending, and this time there’s a clear reason: higher-income households are still spending, helped by a strong stock market.
That cushion has limits. “But if we were to experience a stock market correction, then the situation would change quickly,” James Knightley of ING told Reuters.
A separate University of Michigan survey, cited by Reuters, asked people how they’re reacting to items with big price increases:
- Just under a third said they would keep spending as usual.
- 54% said they plan to cut back.
- About 16% said they plan to stop buying those items.
Jim Baird of Plante Moran Financial Advisors summed up the mood this way: consumers are “frustrated with rising prices and a sense of treading water financially.”
What It Could Mean Heading Into the Holidays
Retailers are watching closely. Holiday forecasts already lean on higher prices to lift sales totals, and many shoppers have said they expect to borrow to get through the season, as we reported earlier this month in our look at holiday shopping plans. A household that plans to cut back on items with steep price increases may still buy gifts but trade down, shop sales harder or spend less overall.
For small businesses, the split between higher- and lower-income shoppers matters. Stores and services that rely on budget-conscious customers may feel the pullback first, while businesses that serve wealthier households may see steadier demand for as long as stock prices hold up.
What It Means for Your Wallet
Sentiment surveys don’t predict your own finances, but the forces behind this one are worth planning around:
- Borrowing costs are high. With mortgage rates at a three-year high and the Fed signaling possible further increases, carrying a balance on a credit card or financing a big purchase costs more than it did a year ago.
- Energy costs are a wild card. Gas prices have been tied to events overseas this year, which makes them hard to budget for.
- Big-ticket timing is personal. Many people are holding off on large purchases. Whether that’s right for you depends on your own needs and finances, not on the national mood.
The Catch
This is a preliminary reading based on early-month interviews. The final October number will come later this month and can differ. Forecasts for the reading also varied: Reuters said economists expected 47.8, while Yahoo Finance cited an expectation of 47.3. Either way, the result came in below forecasts.
It’s also worth remembering what the survey is: a measure of how people feel. Actual spending data, job numbers and inflation reports will show whether that frustration turns into a real slowdown.
More on Contoh
- Mortgage Rates Climb to 7.40%, the Highest in Nearly 3 Years
- Fed Minutes Say the AI Building Boom Is Adding to Inflation
- Holiday Shoppers Plan to Spend, but Half Expect to Borrow to Do It