Preliminary Read on Consumer Sentiment Worse Than Expected

The first monthly look at consumer sentiment for October wasn’t pretty. The University of Michigan survey said sentiment fell 4.1 points to 69.4, erasing more than half of September’s 7.8 point leap.

Analysts were looking for continued strength as the equity market as climbed to annual highs in the first two weeks of the month. Jobless claims have also moderated in five of the past six weeks to nine-month lows, and home prices have been rising modestly. Even so, indexes for six-month expectations and current conditions each fell.

A worse than expected jobs report for September and the 9.8% unemployment rate are likely to blame for the downside surprise. Many economists don’t believe there will be sustained improvement in sentiment until a lasting improvement in the jobs market takes hold. And that could be a while, as even the Federal Reserve believes that by the end of 2010, the unemployment rate will still be higher than 9%.

The report “illustrates a very clear risk that the U.S. consumer will struggle to get up off the mat after taking a knockout blow over the past few years,” said Eric Lascelles, senior strategist at TD Securities.

Also in the report were the latest consumer expectations on inflation. The 1-year number   posted a surprise as it jumped six-tenths to 2.8%, and the 5-year number ticked one-tenth higher to 2.9%.

“The combination of falling confidence and rising inflation expectations is not what anyone would hope to see,” Lascelles said.

The results of the survey are only preliminary; a fuller look will be released at the end of the month.

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