American consumers' attitudes are as negative as they have been all year, according to University of Michigan and Thomson Reuters data released Friday morning.
The consumer sentiment index, based on a poll of 500 U.S. households, slipped from 77.5 in September to 73.2 in October, missing analysts' expectations. Friday's reading is the first to incorporate the full effects of the damage done to Americans' outlooks by the political struggle over funding the government and raising the debt ceiling.
Consumer confidence is the "key" to understanding if the budget crisis will have caused any "sustained economic damage" to the economy, wrote American Action Forum president Douglas Holtz-Eakin in a morning note. Holtz-Eakin also warned that a hit to consumer sentiment is a "warning to all sides that the economy may not be able to withstand a rerun of recent events " when Congress must fund the government and raise the debt ceiling in the months ahead.
Other measures of Americans' attitudes also plummeted during the 16-day shutdown that started Oct. 1. Economic confidence fell to two-year lows in the Gallup daily poll before recovering as it became clear that Congress would reach a deal to raise the debt ceiling and fund the government.
Falling consumer sentiment could translate to lower consumer spending, a problem for a U.S. economy that remains weak four years after the official end of the recession that began with the financial crisis. During the congressional standoff over the shutdown and debt limit, indices of consumers' feelings fell more dramatically than other important economic indicators did. Consumer sentiment also cratered during the 2011 debt ceiling fight, although in that instance consumer spending held up.
Friday's poor reading is the clearest hint yet that political battles will hamper the ongoing recovery, beyond the direct fiscal costs imposed by the shutdown.
Private-sector estimates of the economic costs of the October political showdown range from 0.2 to 0.6 percentage points in lost annualized gross domestic product growth for the fourth quarter. White House economic advisers, using an index of their own construction, assessed the damage at 0.25 percentage points, and 120,000 lost jobs.