Consumer confidence fell in October as inflation concerns persisted

New data shows that consumer confidence has fallen for the third month in a row. This is a sign that America’s view of the economy is deteriorating due to a weakening labor market and persistent inflation.

The University of Michigan’s October Sentiment Index, released Friday, shows consumer confidence fell 1.5% month over month to 53.6%. The index has recovered slightly after plunging to a three-year low in April, but still remains below January 2025 levels due to growing concerns about vulnerabilities in the US economy – with the impact being felt differently across income groups, experts note.

“The lower to middle end of the income spectrum are increasingly concerned about job and income prospects, and that is weighing on their morale at a time when prices are rising,” EY-Parthenon chief economist Greg Daco told CBS News ahead of the index’s release. “So it really is an affordability issue.”

The closely watched consumer confidence index measures Americans’ job prospects, wages, inflation, business conditions and personal finances on a monthly basis.

“It’s the only piece of data we get if we don’t know how consumers spend,” Greg Daco, chief economist at EY-Parthenon, told CBS News.

Inflation expectations rose in October, an indication that Americans are still feeling the pressure of high prices. According to Joanne Hsu, director of the Surveys of Consumers at the University of Michigan, the increase in long-term inflation expectations from 3.7% last month to 3.9% this month was driven mainly by independents and Republicans.

“Inflation and high prices remain at the forefront of consumers’ minds,” she said in an interview statement.

The government shutdown appears to have had little impact on consumers’ economic prospects. Only about 2% spontaneously referred to the shutdown during the University of Michigan interviews in October, down from 10% of consumers in January 2019, when the government was shut down for 35 days, Hsu said.

The snapshot of consumer confidence comes after the Bureau of Labor Statistics (BLS) released the Consumer Price Index (CPI) – the first piece of federal economic data Wall Street has received since the the loss of government funding started on October 1.

This is evident from the latest CPI data rose 3% year-on-year in Septemberbelow economists’ expectations, but still above the Federal Reserve’s 2% annual target. Inflation numbers will be a crucial factor in the Fed’s decision on the federal funds rate next week.