Consumer Sentiment Unexpectedly Jumps, Fueled By Independents, Despite Growing AI Bubble Fears

The UMichigan consumer sentiment survey unexpectedly jumped in November to a three-month high, boosted by modest improvements in Americans’ views of their personal finances and the economic outlook.

The University of Michigan’s preliminary sentiment index increased to 51 in November from 48 in October; the median estimate in a Bloomberg survey of economists projected sentiment to hold at 48. Still, despite the improvement, the overall index remains just shy of the lowest prints ever recorded just a few months ago and during the early 1980s “hyperinflationary” period. 

The improvement was concentrated among independents, who reported the strongest consumer sentiment in more than a year. Curiously, sentiment across both Democrats and Republicans deteriorated in the days ahead of the mid-term election (The survey period included responses from Oct. 20 to Nov. 2). 

The improvement was widespread across both current conditions and expectations, with the two printing at 51.0 and 50.9, respectively, beating expectations of 47.0 and 49.0. Curiously, this happened despite another sharp drop in Democrat assessment of current conditions.

Cost of living concerns remain top of mind for many Americans. About 57% of respondents spontaneously mentioned that high prices had eroded their living standards – the highest since May.

Despite limited layoffs and strong economic growth, household finances have been squeezed as prices rise faster than wages. Democrats’ decisive victory in the midterm elections reflected deep voter frustration with the economy, particularly the high cost of food, gasoline and housing.

Inflation expectations in the year ahead improved but remained elevated. Consumers expect prices to rise 4.3% over the next year, down from 4.7% a month ago to a three-month low, and below expectations of a 4.6% print. They also saw costs climbing at an annual rate of 3.4% over the next five to 10 years, also a step down from the 3.5% in the prior month.

In addition to inflation worries, “consumers’ comments revealed growing anxiety over a possible AI bubble,” Joanne Hsu, director of the survey, said in a statement.

“The personal finances of consumers with the largest stock portfolios dropped 12% this month to their lowest reading since April, likely due to agitation in stock values in recent weeks, while all other wealth groups saw modest improvements,” she added.

A survey of current personal finances climbed to a four-month high in November, while Americans’ views of buying conditions for durable goods rebounded from a record low.