Consumers’ pessimism about the economy has grown significantly this month, according to the University of Michigan’s monthly survey of consumer sentiment.

The survey rated consumer confidence at 68.1 out of 100 in September but found it had fallen to 63 this month. The drop was markedly greater than the 67.2 analysts had predicted.

“Consumer sentiment fell 7 percent this month following two consecutive months of very little change,” survey director Joanne Hsu said in a statement announcing the results.  “Assessments of personal finances declined about 15 percent, primarily on a substantial increase in concerns over inflation.”

Consumers’ expectations for business conditions over the next 12 months plunged 19 percent but remained little changed for the long term, “suggesting consumers believe the current worsening in economic conditions will not persist,” Hsu added.

Survey respondents expect inflation to run at 3.8 percent at this time next year, compared to an estimate of 3.2 percent last month and the highest since May.

TREND FORECAST: Mainstream headlines have told us that consumers kept spending through most of the past two years and that this indicated the economy was still growing.

Wrong.

Consumers spent more dollars, thanks to inflation, but the rate of spending increased less than the rate at which prices were inflating.

As Trends Journal readers know, that means consumers were paying more dollars to buy less stuff. Because consumer purchases make up more than two-thirds of the U.S. economy, economic activity actually has been declining.

More dollars flowing through the economy may look good but what matters is the volume of goods and services being bought. That has lagged inflation for most of the last 18 months.

Consumers who feel even more pessimistic about the future are even more likely to restrict discretionary spending. The new Michigan poll indicates the growing likelihood of a U.S. recession. (See “Trouble Ahead? U.S. Consumers Cut Back on Credit Card Spending” in this issue.)