Consumer Sentiment in the U.S. Affected by Government Shutdown and Labor Strikes, Says University of Michigan Survey

The latest consumer sentiment survey from the University of Michigan reveals that Americans are growing increasingly concerned about the possibility of a government shutdown and ongoing labor strikes.

According to the final reading of the university's Consumer Sentiment Index, it slipped by 1.4 points in September, indicating that U.S. consumers didn't experience a significant increase in pessimism during the month. However, the situation could change in October.

The uncertainty surrounding the government shutdown and labor disputes, particularly in the auto industry, is causing consumers to be cautious about the trajectory of the economy, as noted by Joanne Hsu, the Surveys of Consumers Director at the University of Michigan. Hsu stated, "Consumers are understandably unsure about the trajectory of the economy given multiple sources of uncertainty, for example over the possible shutdown of the federal government and labor disputes in the auto industry. Until more information emerges about these developments, though, consumers have reserved judgment on whether economic conditions have materially changed from the past few months."

Despite the overall drop in consumer sentiment, the survey did show a slight increase in consumers' expectations for future business conditions, with a reading of 66 in September compared to August's 65.5. Additionally, Americans' expectations for inflation rates in the coming year moderated, decreasing from 3.5% in the prior month to 3.2% in September.

The survey suggests that Americans' moods could deteriorate if the government were to shut down due to a lack of approval for new spending by Congress, similar to the situation in May when congressional lawmakers narrowly averted a U.S. default by reaching a last-minute deal to raise the federal government's debt limit. The extent of the shutdown's impact will also depend on its duration.

As of now, it appears that House Republicans are unlikely to reach a consensus on a spending bill that could pass through the Senate before the midnight deadline on Saturday. This could result in federal workers being furloughed and government agencies operating with reduced staff, potentially hindering their ability to provide essential services.

Furthermore, the United Auto Workers (UAW) strike is ongoing and shows no signs of a quick resolution, with the UAW expanding its strike to additional Ford and GM facilities. Additionally, more than 75,000 health care employees at various Kaiser Permanente facilities across multiple states are expected to strike starting Wednesday if contract negotiations fail.

There are also looming strikes by two unions representing 60,000 culinary workers and bartenders in Las Vegas and Reno.

With this level of uncertainty and disruption, Americans may begin to feel uneasy in the coming weeks, which could impact their spending habits. A separate report from the Commerce Department indicated a slowdown in consumer spending growth, with a 0.4% increase in August compared to July's 0.9% gain.