Americans' View of the Economy Hits Near Record Low Weeks Before Midterms

Americans' view of the economy has sunk to its second-lowest level on record, with the University of Michigan's consumer sentiment index falling to 46.3 in early October — the third straight monthly decline.

The preliminary reading, released October 9, came in below the 47.8 economists had expected and slid from 48.1 in September. If it holds in the final reading due October 23, it would be the second-lowest score since the survey began in 1952, surpassed only by the all-time low of 44.8 set in May.

The details were bleaker still. The index of current economic conditions plunged to 44.7 — an all-time low. Consumers said buying conditions for durable goods had "plunged" amid high prices and borrowing costs. Year-ahead inflation expectations rose to 4.7% from 4.6%, while five-year expectations ticked up to 3.5% from 3.4%.

"Frustration over cost-of-living continues to mount," said survey director Joanne Hsu.

The sharpest declines came among lower-income consumers, those with smaller stock portfolios, and political independents. The university said frustration is spreading across the political spectrum, with consumers believing the economy's trajectory has weakened since the start of the year.

The Middle East conflict is the engine of the gloom: the U.S.-Israeli war with Iran has pushed energy prices higher, fanning inflation and prompting the Federal Reserve to raise interest rates in September for the first time in three years. Rising borrowing costs have compounded the squeeze on household budgets.

The timing is politically brutal. With the November 3 midterm elections less than a month away, the reading is more bad news for President Trump, whose approval rating sits at the lowest of his political career amid angst over his handling of the economy. "It may not be readily apparent in headline GDP data, but it's likely to be very apparent as voters cast their ballots," said Jim Baird, chief investment officer at Plante Moran Financial Advisors.

One puzzle remains: spending has held up even as sentiment crumbles. Economists point to a K-shaped economy, where higher-income households — buoyed by strong stock markets — keep spending, while 54% of consumers say they'll cut back and about 16% say they'll stop buying altogether.

Sources: Reuters, University of Michigan Surveys of Consumers, CNN.