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Consumer Sentiment Rebounds on Historic Expected Income Gains, Easily Beating Forecasts

Expected Change in Real Income Hits New High, Beating Previous High Two Decades Ago

The Survey of Consumers preliminary reading on consumer sentiment for October rose to 96.0, a far stronger-than-expected rebound driven by historic levels of expected income gains.

Forecasts ranged from a low of 90.0 to a high of 93.7. The consensus forecast was only 92.0 for October.

“Sentiment rebounded in early October as consumers anticipated larger income gains and lower inflation during the year ahead,” Richard Curtain, chief economist for the Survey of Consumers, said.

Expected change in real income — which is the percentage expecting an increase minus the percentage expecting a decrease — rose to 99 in October, exceeding the 98 reading in September 1998.

“As a result, real income expectations rose to their most favorable level in two decades (see chart above),” Mr. Curtain added. “Stronger finances and lower interest rates helped to modestly bolster buying plans.”

IndicatorOctSepOctM-MY-Y
201920192018
Index of Consumer Sentiment96.093.298.6+3.0%-2.6%
Current Economic Conditions113.4108.5113.1+4.5%+0.3%
Index of Consumer Expectations84.883.489.3+1.7%-5.0%

Though trade uncertainties remain, the percentage of those who cited it as a negative fell to 29%, down from 36%.

Worth noting, the impeachment inquiry has not yet had a significant negative impact; it was negatively cited by 3%, only about half as many as those who negatively cited the strike at General Motors Company (GM).

The Current Economic Conditions Index rose 4.9 points from 108.5 in September to 113.4. The Index of Consumer Expectations rose marginally from 83.4 to 84.8.

“Overall, the data indicate that consumption spending will be strong enough to offset weakness in business investment spending so as to keep the economy expanding into 2020,” Mr. Curtain said.

“Nonetheless, there are significant global and domestic uncertainties that will keep consumers cautious spenders, although the income gains among lower and middle income households will translate into higher spending among these households.”

The next data release for the final reading is scheduled for Friday, October 25, 2019 at 10am ET.

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