American businesses kept the expansion going in October, but American consumers are near their gloomiest in decades. The S&P Global flash PMIs and the University of Michigan’s final consumer sentiment reading landed within minutes of each other Friday morning, painting two radically different pictures of the same economy — one humming, one hurting.
The divergence isn’t subtle. Manufacturing PMI ticked up to 56.0, beating the 55.4 consensus. Services held at 57.9, a tick below expectations but still firmly in expansion territory. The composite reading of 57.6 marks a two-month low, but any number above 50 signals growth — and 57.6 is well above it. Businesses are adding orders, hiring workers, and pushing through price increases.
Meanwhile, the Michigan survey delivered a gut punch: the Current Economic Conditions subindex plunged 8.3% in a single month, falling from 50.9 in September to 46.7. That is the sharpest one-month drop since the spring of 2025, and it brings the index within striking distance of the all-time low of 44.7 set in May of this year.
The PMI Picture: Growth, But Softer
The S&P Global Flash PMI data showed the US private sector expanding at a healthy but decelerating pace in October:
- Manufacturing PMI: 56.0 — beat consensus of 55.4, up slightly from September’s final 55.9. New orders and output both contributed to the gain. Production growth accelerated, and supplier delivery times improved modestly.
- Services PMI: 57.9 — missed consensus of 58.0, down from September’s 58.8. The services sector is still expanding briskly, but the pace has cooled for the second straight month. Input cost pressures remain elevated in services, driven by wage growth and energy pass-through.
- Composite PMI: 57.6 — a two-month low, down from 58.4 in September. The composite blends manufacturing output and services activity into a single pulse reading. At 57.6, the US economy is still expanding faster than any other G7 economy tracked by S&P Global.
Context matters: September’s 58.4 composite was the fastest expansion in over five years. October’s 57.6 is a step down, but it is still consistent with GDP growth north of 2%. The PMI data does not suggest a recession. It suggests a hot economy losing a little steam.
The Consumer View: Durable Goods Buying Conditions Collapse
The Michigan survey tells an entirely different story. The headline sentiment index came in at 48.0, essentially flat from the 48.1 preliminary reading and September’s final. That is 10.4% below where it stood a year ago (53.6) and 15% below February’s pre-Iran-conflict level.
The breakdown reveals the pain points:
- Current Economic Conditions: 46.7 — down from 50.9 in September, an 8.3% monthly drop. This is the component that measures how people feel about their finances right now, and the answer is: terrible. The 20.3% year-over-year decline is the steepest since the index began tracking this breakdown.
- Consumer Expectations: 48.8 — actually improved from the 46.3 preliminary reading, a 5.4% monthly gain. Consumers are slightly less pessimistic about the future than they were two weeks ago. Year-ahead business conditions improved about 14%, though they remain 16% below last October.
- Durable goods buying conditions: plunged 18% — per Surveys of Consumers Director Joanne Hsu, the entire decline in current conditions was “driven entirely by buying conditions for durables, which plunged 18% on the basis of higher interest rates and rising concerns about the affordability of such purchases.” Cars, appliances, furniture — the big-ticket items that signal consumer confidence — are simply not being bought.
Sentiment is now 10% below a year ago and 15% less than February, just prior to the Iran conflict.
— Joanne Hsu, Surveys of Consumers Director
Inflation Expectations: The Quiet Creep Higher
Buried in the Michigan data is a detail the Federal Reserve will not ignore: inflation expectations are edging up again.
- Year-ahead inflation expectations rose to 4.7% from 4.6% in September. That is substantially above the 3.4% reading from February, before the Iran conflict sent oil prices soaring.
- Five-year inflation expectations ticked up to 3.5% from 3.4%. Long-run expectations are the Fed’s North Star for inflation psychology, and 3.5% is well above the 2% target-consistent range the FOMC wants to see.
Oil above $111 a barrel is filtering through to consumer psychology. The PMI data confirms that businesses are passing through higher input costs — the output price components in both manufacturing and services remain elevated. Consumers see it at the pump, at the grocery store, and now in their long-term outlook. When five-year inflation expectations break above 3.5%, the Fed’s “transitory” narrative loses its last foothold.
What It Means: Someone’s Compass Is Off
When businesses report expansion in the high 50s and consumers report conditions in the mid-40s, someone’s reading is off. The PMI surveys capture purchasing managers — people who see order books, inventory levels, and hiring pipelines. The Michigan survey captures households — people who see grocery bills, gas prices, and interest rates on their credit cards. Both are accurate, and both are telling the truth about their slice of the economy.
The 18% collapse in durable goods buying conditions is the canary. Manufacturing PMI at 56.0 says factories are busy. But if consumers stop buying cars, washing machines, and furniture — the exact products those factories are building — the orders dry up. The PMI data lags consumer behavior by weeks or months. If the Michigan current conditions reading is the leading indicator, the PMI data may follow it down in November and December.
The Expectations improvement is the counterargument. At 48.8, consumers see a slightly brighter future — year-ahead business conditions jumped 14% from the preliminary reading. If that optimism translates into spending, the divergence closes from the consumer side. But expectations don’t pay bills. Current conditions at 46.7 with durable goods buying conditions in freefall suggests the consumer pullback is already underway.
Bottom Line
The US economy is growing at a pace most countries would envy, but American households are not feeling it. The PMI data says expansion continues. The Michigan data says consumers are near record-low confidence and actively pulling back on big purchases. One of these signals will prove prescient. Historically, when the Michigan Current Conditions index falls 8% in a single month, the PMI data follows within a quarter. The durable goods pipeline — from factory floor to showroom floor — is about to confront a consumer who has stopped buying.
Next week brings durable goods orders for September, new home sales, and the Conference Board’s consumer confidence reading for October. The FOMC also begins its two-day meeting on Tuesday. If the Conference Board data confirms the Michigan deterioration, expect the rate-cut narrative to return to the table — even with oil above $111 and inflation expectations creeping higher.
Sources: S&P Global Flash US PMI (October 23, 2026), University of Michigan Surveys of Consumers Final Results for October 2026, Trading Economics.