Americans’ attitudes toward the economy improved this month thanks to lower interest rates.
The University of Michigan’s latest consumer survey, released Friday, showed that sentiment rose in October for the third consecutive month, reaching its highest level since April. Americans’ expectations for inflation rates in the long run also edged lower this month.
“This month’s increase was primarily due to modest improvements in buying conditions for durables, in part due to easing interest rates,” Joanne Hsu, director of the university’s Surveys of Consumers, said in a release.
The Federal Reserve last month cut interest rates for the first time in more than four years, by a bold half point, in part thanks to inflation coming under control. Lower borrowing costs make it cheaper for American shoppers to buy durable goods such as appliances, cars and furniture, which are usually bought on credit.
But sentiment isn’t always a good predictor of actual spending behavior. The government’s latest report on retail spending, out last week, showed that sales of durable goods declined in September, and a separate report released Friday showed that new orders for durable goods placed with US factories fell 0.8% in September, following another decline in the prior month.
Still, the Fed has made it clear it plans to continue lowering rates, if the economy evolves as expected, so that might be reassuring enough for US consumers.
“Even though lending rates haven’t started to drop, consumers know that should be coming with Fed rate cuts,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a note Friday. “Added to already strengthening spending, lower rates and increasing consumer sentiment could be the backbone of a seventh-inning economic surge.”
The University of Michigan report also showed that sentiment among Republicans soared later this month due to rising bets that former President Donald Trump will win the upcoming presidential election, while sentiment among Democrats soured a bit.
