Consumer sentiment fell to a 10-year low in November, reflecting a sharp partisan divide over rising inflation, the University of Michigan reported on Friday.
The overall index fell 13.1% year over year to 66.8 from 71.7. The current conditions index fell to 73.2 from 77.7, a 15.9% drop from a year ago, while the index of expectations about the future slumped to 62.8 from 67.9, 10.9% below the same reading a year ago.
“Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation,” Richard Curtin, who oversees the consumer surveys, wrote.
Curtin noted the stark partisan nature of the sentiments expressed.
“Partisans aligned with the President’s party have adopted very positive moods, and those in the opposing camp very negative moods,” Curtin said, noting the differences in outlook between supporters of President Joe Biden and those of former President Donald Trump. “As a result, partisan supporters of one or the other presidents either mentioned or ignored rising home and stock values, inflation and income growth rates, or mentioned or ignored employment or unemployment rates, and so forth.”
Curtin said the differences in how people view the economy were “larger than differences across income, age, and education” reflecting the deeply divided nature of the country.”
“The issues underlying the stark partisan divisions are based on stark differences in economic policies,” he added. “The stylized difference is that one side favors maximizing economic growth and efficiency, the other side on maximizing distributional equity and fairness. Such legislative challenges are won or lost by extreme partisan support drawn from both sides of the aisle. Such extremes, however, make achieving their policy goals much more important than providing effective counter measures to ongoing economic hardships.”
Inflation has become the No. 1 issue on the minds of consumers and voters, according to polling, surpassing COVID-19. Republicans have made it a key issue as they hammer Biden ahead of the midterm elections next year. Biden’s poll numbers have slumped, with overall approval now at 42%, as prices have risen.
The most recent data on consumer inflation, released Wednesday, shows prices are rising at an annual rate of 6.2&. More troubling, perhaps, is that inflation has spread from a handful of goods to many common items, like food, gasoline, shelter and even some services.
That will make the job of controlling it that much different, a task that is in the hands of the Federal Reserve Board. Already, the Fed has said it will soon begin reducing the amount of money it has been pouring into the economy, but many economists believe the Fed will also have to raise near-zero interest rates much earlier than originally anticipated.
The report comes as other economic data released Friday showed a labor market that is still feeling the effects of the coronavirus pandemic but one in which jobs are plentiful and people are feeling confident enough to quit their jobs.
The Labor Department reported 10.4 million job openings at the end of September, essentially unchanged from a month earlier, while a record 4.4 million people quit their jobs.
“Right now, the biggest risk to the economy is inflation,” Sita Slavov, a professor of public policy at George Mason University, said Wednesday during a panel discussion organized by the Peter G. Peterson Foundation. “That’s something that seems to be picking up, and it’s something that policymakers should really be concerned about.”
“I would be concerned about longer-term inflation,” Slavov added. “I’m not sure that it is transitory. Action needs to be taken.”
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