Confidence of American consumers about the economy showed an unexpected drop in October, slumping to the lowest level seen in the past one year as the country prepares for presidential election next month.
A report released by the University of Michigan on Friday showed its preliminary index of sentiment shed more than three points from a month ago to 87.9 in the early part of this month.
The reading of consumer confidence was the lowest seen in 13 months, according to the Wall Street Journal. It was also the second-lowest reading in two years. The preliminary October index was lower than what had been predicted by analysts.
Economists had forecast an improvement on the reading of 91.2 seen in the previous month.
Political uncertainty arising from the ongoing presidential election campaign appears to be affecting consumer confidence. The unexpected decline indicates Americans are not convinced on how the economy will fare in the future.
The slump in confidence was especially greater among households that make less than $75,000 per annum.
“It is likely that the uncertainty surrounding the presidential election had a negative impact, especially on low-income consumers, and without that added uncertainty, the confidence measures may not have weakened,” Richard Curtin, the chief economist of the University of Michigan consumer survey, said in a statement.
The University of Michigan report showed consumers’ expectation of the state of the economy six months from now fell to 76.6, declining by about 6 points. It was the lowest level recorded since September 2014.
The proportion of respondents in the consumer survey who expected the economy to perform very well in the coming year stood at 37 percent, the lowest in more than two years. The report also showed that consumers’ outlook for the economy over the next five years dropped.
However, the view on Americans of current economic conditions improved to 105.5, up from 104.2 in the previous month. This shows they do not believe their personal finances have been adversely affected by the present economy.
Spending by American consumers is the main driver of the economy, with this accounting for around 70 percent of total output. It means there is likely to be problems in the economy if there is a significant drop in consumer confidence. This could make households to be more careful about how they spend money.
Retail sales grew by the highest level seen in three months in September, as shown in another report released by the Commerce Department on Friday. This was an indication that consumers are beginning to spend more freely.
The University of Michigan survey showed American consumers expect price to rise more slowly in the coming months. Expectation of future inflation lowered to an average of 2.4 percent over the next five to 10 years – this is the lowest ever recorded in the survey. The expected rate of inflation stood at 2.6 percent last month.
The Federal Reserve has been making efforts to push inflation up to 2 percent to facilitate economy growth at a steady pace. Inflation has slowly risen in 2016, but it still remains at historically-low levels.
The fall in consumers’ inflation expectations is expected to weigh on the Fed’s plan to raise interest rates.