FiscalFusion

Consumer sentiment dropped to a three-year low — and close to the lowest level ever recorded — one month into the government shutdown, as pessimism over personal finances and business conditions weighed heavily on Americans. The University of Michigan’s November survey showed sentiment at 50.4, a startling 6.2% drop from last month and nearly 30% below year-ago levels, surprising economists who had expected a slight increase to 54.2. “With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy,” said Joanne Hsu, the survey’s director, noting the decline was broad across age, income, and political affiliation, with the exception of those holding large amounts of stock who have benefited from big tech and AI-driven market gains.

The top 20% of households by income account for 40% of consumer spending, and the strong stock market has boosted their confidence, according to Oxford Economics’ Michael Pearce. Meanwhile, the nation’s largest retail trade group forecast a trillion-dollar Christmas season with holiday sales expected to grow up to 4.2%. The survey also found that year-ahead inflation expectations edged up to 4.7% while long-run expectations dipped to 3.6%.

ING economist James Knightley highlighted rising job fears, with 71% of households expecting unemployment to increase over the next year — a sharp rise from last month — historically a warning sign for the labor market. With federal data reports halted during the shutdown, economists are relying on private sources that show job seekers taking longer to find work in a “low hires, low fires” environment. Some economists cautioned that the sentiment drop may have been influenced by methodological changes, including last year’s switch from phone to online sampling, with Pantheon Macroeconomics’ Oliver Allen urging the numbers be taken “with a grain of salt.” The survey was conducted before Election Day..