U.S. Consumer Sentiment in October Hit Its Highest Level Since 2004 -- Update

By Harriet Torry Features Dow Jones Newswires

A measure of U.S. consumer sentiment hit its highest level since 2004 this month, but consumers' expectations for short-term inflation dipped, a potential red flag for the Federal Reserve.

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The University of Michigan said Friday that its final October reading of consumer sentiment was 100.7, up from 95.1 in September.

The final result was a bit lower than October's initial reading of 101.1 and slightly undershot economists' expectations for a final October reading of 100.8. Nonetheless, consumer sentiment rose robustly from September, and it is up a hearty 15.5% from October 2016.

October's jump in sentiment was due to consumers' more favorable assessments of their current economic conditions and future prospects.

However a decline in short-term inflation expectations could unsettle Federal Reserve policy makers ahead of their next scheduled policy meeting in Washington next week. Friday's report showed that consumers expect inflation rates to increase at a slower pace over the next year than they did a month ago. In October, consumers expected inflation to rise 2.4% over the next year, down from 2.7% in September and the lowest reading so far this year. Consumers this month expected a 2.5% rise in inflation over the next five years, unchanged from September.

Some Fed policy makers have voiced concern that weak inflation expectations could pull down inflation overall, making it harder for the central bank to meet its annual 2% inflation target.

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The price index for personal consumption expenditures -- the Fed's preferred measure of inflation -- rose at a 1.5% annual rate in the third quarter.

Nonetheless, the University of Michigan's gauge of consumer sentiment found that more than half of respondents expected good times during the year ahead and anticipated the economic expansion will continue uninterrupted over the next five years.

An index that tracks expectations about the future rose 7.2% on the month to 90.5. An index tracking confidence in the current economic situation increased 4.3% to 116.5.

"Personal finances were judged near all-time record favorable levels due to gains in household incomes as well as decade highs in home and stock values," said Richard Curtin, chief economist of the Michigan survey.

The positive reading on Americans' outlook for the economy this month came as the Commerce Department released data showing the economy grew robustly in the third quarter. Gross domestic product, the broadest measure of goods and services made in the U.S., expanded at a 3% annual rate July through September, propelled by steady spending from American businesses and households.

Write to Harriet Torry at harriet.torry@wsj.com

(END) Dow Jones Newswires

October 27, 2017 11:49 ET (15:49 GMT)