Americans haven't felt this bad about money going into an election since the survey began in the early 1950s. The University of Michigan's consumer-sentiment index slipped to 48 in its late-October reading. That's the second-lowest number in the survey's history. September was 48.1. So the mood didn't fall off a cliff this month. It was already on the floor.
The comparison is what stings. The old low for an October before a midterm or presidential vote was 57.6, set in October 2008. The financial crisis was peaking that month. Today's shoppers say they feel worse than that, by nearly ten points. The job market is stable, the paper says. The feeling is still the feeling.
Matt Grossman of the Journal lists the reasons. Gasoline is expensive. Inflation hasn't gone away. Consumer prices rose 3.7% in the year to September, by the index printed in the same paper. The job market is stable but staid, in his words, so few people feel a raise coming. And in October, people's expectations for inflation ticked higher, both for the near term and the long term. That last line is the one a planner reads twice. People now expect prices to keep rising, and they say so to the pollsters. Both parties will read the number their own way. We'll leave that to them.
The mood and the wallet disagree
Here's the strange part. On the same weekend, the paper reported that American Express (AXP) sales rose 9% in the third quarter. Its card members, a well-off slice of the country, keep spending more. People say they feel terrible and keep buying. That gap between what shoppers say and what they do has shown up before. Sentiment measures how people feel about the future, and it has been wrong about the future many times. A low reading isn't a forecast of a downturn. It isn't a forecast of a rebound either. It's a snapshot of a tired, price-weary public.
Our read
This is a Behavioral story, and the lesson is to keep the feeling and the plan in separate rooms. A reading of 48 tells you how people feel. It doesn't tell you what they'll do or what markets will do. The useful part of the survey is the inflation line. When a whole country expects prices to keep rising, a plan should budget for that instead of hoping it away. That means a cash reserve that earns something, a bond sleeve with some inflation protection and a spending number that gets a raise each year. Short-term TIPS (VTIP) are held in 10 books; nothing added.
The one thing in your plan this touches is the inflation rate your retirement projection uses. The check for this week is to find that number. If the plan assumes 2% and your grocery bill says otherwise, the plan is lying to you a little more each year. Look, too, at whether any of your cash and bonds would keep up if prices kept rising. Moods pass. Math doesn't. We'd rather check the roof while it's dry than during the storm. If you can't find the number, bring the plan to your next review.