The University of Michigan Consumer Confidence Index in the US reached its highest level in six months in October, mainly as lower interest rates made buying big-ticket items such as cars more attractive. The increase in consumer confidence is particularly noticeable among Republicans, who are optimistic about their party’s chances in the next presidential election.
The index rose to 70.5, up from 70.1 in September and the highest level since April. The figure beat economists’ median estimate of 69.0 and also represented an improvement from preliminary figures of 68.9 released two weeks ago.
The rise in sentiment was largely influenced by political trends. Republicans and independent consumers led the rise in confidence, while sentiment among Democrats declined. Republican support rose 7.8%, the largest increase since February, and independents also rose 4.1%, the highest increase since January. Meanwhile, support for Democrats fell by 1.3%, the first decline since July.
According to research director Joan Hsu, the proximity to the November 5 presidential election is having a big impact on consumer expectations. There is growing confidence among Republicans that former President Donald Trump, the Republican nominee, will defeat Democratic nominee Vice President Kamala Harris. The race is now extremely close, with 57% of consumers expecting Harris to win, down from 63% in September.
Households are also adjusting their expectations about inflation, which is consistent with the Federal Reserve’s efforts to wean itself off the high interest rates put in place to curb inflation after the pandemic. Inflation expectations for next year were stable at 2.7% in October, consistent with the September reading and within the pre-pandemic range of 2.3% to 3.0%. Long-term inflation expectations fell slightly from 3.1% to 3.0%.
The Fed cut interest rates by 0.5% in September for the first time in four years, but is scheduled to meet again immediately after the election. Officials are expected to cut rates further, albeit by a modest 0.25%.
Reuters contributed to this article.
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