Consumer sentiment climbs to 3-month high in October on easing worries over trade war

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Consumers aren’t pessimistic about the economy, but they aren’t as optimistic as they were in the spring.

The numbers: Americans in October showed the most optimism about the economy in three months, reflecting easing concerns about the trade war with China and little worry so far about the potential impeachment of President Trump.

The consumer sentiment survey rose to a three-month high of 96 this month from 93.2 in September, the University of Michigan said Friday in a preliminary estimate.

Economists surveyed by MarketWatch had forecast a reading of 92.5.

What happened: Consumers expect their incomes to continue to rise while a sharp decline in interest rates has added to their optimism. Many Americans have taken advantage of lower rates to buy a home, refinance or get a new car.

Expectations for real, or inflation-adjusted, income gains rose the “most favorable level in two decades,” said Richard Curtin, chief economist for the survey.

A gauge that measures what consumers think about their own financial situation and the current health of the economy rose to 113.4 from 108.5, marking the highest level since the end of 2018.

Yet another measure that asks about expectations for the next six months barely rose, reflecting expectations of slower economic growth and a somewhat higher unemployment rate in the months ahead.

Read: Low consumer inflation opens the door for Fed to cut interest rates further

Big picture: The economy is still expanding at a moderate pace, but growth has slowed since the spring when sentiment nearly matched a 14-year high. The trade fight with China has been the biggest source of angst, contributing to a broad slowdown in the world economy that’s hurt U.S. exporters and farmers and dampened business investment.

The darker hue to the economy has also made consumers somewhat more anxious despite a strong labor market and the lowest unemployment rate in 50 years. Economists are watching closely to see if households cut back on a spending, which would be another warning sign.

What they are saying?: “Overall, the data indicate that consumption spending will be strong enough to offset weakness in business investment spending so as to keep the economy expanding into 2020,” Curtin said. “Nonetheless, there are significant global and domestic uncertainties that will keep consumers cautious spenders.”

Read: U.S. adds 136,000 jobs in September and unemployment rate hits 50-year low

Market reaction: The Dow Jones Industrial Average DJIA, +1.55% and S&P 500 SPX, +1.61% surged Friday on hopes of easing U.S.-China trade tensions. Senior Chinese officials are in Washington for a fresh round of negotiations.

The 10-year Treasury yield TMUBMUSD10Y, +4.64% climbed to 1.73%, extending a recent upsurge fueled by hopes of a trade truce.