Friday morning's Michigan Confidence report for October fell more than four points to 73.2, marking the third straight monthly decline. Friday's report was also below the consensus forecast of 74.5. Given the events in Washington during October, as well as the hysterics in the media regarding a potential debt default, though, it is not a surprise that consumers were pessimistic. In fact, the last time this report declined three months in a row was back in the summer of 2011 during the last major debate over the debt ceiling when S&P downgraded the United States' AAA credit rating.
Within the Michigan Confidence report, consumers are also asked about their sentiment regarding current conditions and the future. In this month's report, the current conditions index saw a modest drop of just under 3%, falling from 92.6 down to 89.9. Regarding the future, however, consumers were a lot less optimistic. As shown in the chart below, the expectations index fell nearly 8% from 67.8 down to 62.5. Making matters worse, last month this index saw a similar 8% decline, and is now at its lowest level since November 2011.
With the expectations component of the Michigan Confidence report falling at a much faster rate than sentiment regarding current conditions, the spread between the two has widened out to its highest levels of the current recovery. In fact, the last time we saw this wide a spread between the two components was back in October 2007.