Americans are becoming more pessimistic, and their expectations for inflation are moving in the wrong direction. The University of Michigan’s preliminary October consumer sentiment index fell to 46.3 from 48.1 in September, below the 47.8 economists expected. One-year inflation expectations reached 4.7%, while five-year expectations rose to 3.5%. The survey points to mounting frustration over living costs, particularly among people with lower incomes and smaller investment portfolios. Those households have fewer resources to absorb another increase in bills.
The decline from 48.1 to 46.3 is approximately 3.7% in a single month. Sentiment is a survey, not a direct measure of spending or a declaration that recession has arrived. But dismissing it as people simply having a bad attitude misses the point. These are people looking at their own circumstances and concluding that the pressure is getting worse. They do not need an economist to explain whether their paycheck reaches the end of the month.
The deterioration is far deeper than one disappointing monthly reading. Michigan’s sentiment index stood at 56.4 in January; October’s preliminary 46.3 is almost 18% lower. Compared with October last year, sentiment is down 13.6%, while the index measuring current economic conditions has fallen 23.7%. That current conditions measure plunged 12.2% in just the past month. Meanwhile, expectations for inflation over the next year have climbed from 3.4% in February to 4.7%.
People see their circumstances deteriorating and expect further price increases. A family cutting purchases to cover necessities does not need another lecture about how resilient the consumer remains. Continuing to spend because you still need food, fuel, and shelter tells us very little about whether you can comfortably afford them.
Look at the obligations competing for that paycheck. The median monthly mortgage payment sought by home-purchase applicants was $2,162 in August, according to MBA, before adding property taxes and homeowners insurance. Financed new vehicles carried an average payment of $787 in the third quarter, with 21.2% of buyers committing to more than $1,000 a month. KFF’s 2025 survey puts workers’ average contribution to employer-sponsored family health premiums at $6,850 annually, roughly $571 monthly, before deductibles and other medical bills. Child Care Aware’s national childcare price estimate for 2025 was $13,184 annually, approximately $1,099 a month, but these are all low figures. These describe different groups, rather than a single average household, but combine those benchmarks for an illustrative family with one financed car and one childcare bill and you reach about $4,619 monthly before groceries, utilities, fuel, school supplies, student loans, or taxes. Parents are paying somebody to watch their child so they can go to work, financing the car that gets them there, and paying for health coverage that still leaves additional bills when somebody becomes ill. Then officials tell these same people they need to pay more in taxes each year.
The inflation argument is where Washington loses people. A slower rate of inflation means prices are rising more slowly. It does not return the grocery bill, insurance premium, or repair estimate to what the family once paid. After years of increases, another few percent lands on an already inflated cost of living. Officials announce progress, and the customer at the checkout wonders where this supposed relief can be found.
People with substantial assets have more ways to adjust. They may sell investments, draw on savings, or benefit when asset prices rise. The household living from one payday to the next has fewer choices. They cut purchases, postpone repairs, or borrow taking on more debt.
Confidence improves when households see something change in their own finances, when the bills become manageable and a decent paycheck can provide security. Confidence will continue to decline as costs rise and people open their eyes to the fact that policy is too far gone to fix the cost of living crisis.