US confidence diminishes in October

Consumer confidence in the US has weakened as the Reuters/Michigan consumer sentiment index comes in at 75.2 in a flash estimate for October - after projections of 76.0 and down from September's figure of 77.5. Given the impact of government shutdown, this is not a major drop - although the index is at its weakest for nine months.

The index is now in line with a acute slowdown in consumption growth in the fourth quarter - about one per cent annualised.

Aman Asaf of Capital Economics, commenting that they were "braced for a much bigger drop", says that they "suspect that a combination of lower interest rates and gasoline prices, which have now dropped below $3.50 a gallon, helped to offset some of the negative impact from the shutdown." He adds:

While it's a bit of good news that confidence didn't fall by a whole lot, the preliminary reading of the University of Michigan index has been relatively optimistic over the past year. We won't be surprised if the final estimate (to be released in two weeks) will show a much bigger drop as more recent survey responses are included. That said, if the current political discussions lead to a debt ceiling deal early next week, then presumably confidence will rebound a little.