A man shops in the appliance section at a Home Depot in Washington, D.C., U.S., July 15, 2025. REUTERS/Jonathan Ernst

By Lucia Mutikani

WASHINGTON (Reuters) -U.S. consumer sentiment was steady in October, with households appearing to shrug off a partial shutdown of the government, though worries about the labor market and inflation lingered.

The University of Michigan's Surveys of Consumers on Friday noted that "pocketbook issues like high prices and weakening job prospects remain at the forefront of consumers' minds," adding interviews with respondents showed little evidence the shutdown "has moved consumers' views of the economy thus far."

The shutdown, now in its second week, has disrupted public services, delayed flights and sent hundreds of thousands of federal workers home, with spillover effects to contractors, thousands of whom have been furloughed.

It has also caused the suspension of official economic data collection and publication, impacting the closely watched monthly employment report, which was not released last Friday.

"It looks like consumers don't mind that Washington has shut down," said Christopher Rupkey, chief economist at FWDBONDS. "Consumers have not turned their back on the economy yet."

The University of Michigan said its Consumer Sentiment Index was little changed at 55.0 this month from a final reading of 55.1 in September. Economists polled by Reuters had expected the index to slip to 54.2. Sentiment declined among respondents identifying as Democrats. Republicans and independents were, however, more upbeat this month.

The survey was conducted between Sept. 22 and Oct. 6. Government funding lapsed on Sept. 30. Sentiment declined during previous shutdowns. Economists expected a downgrade when the final data is published later this month.

"The final Michigan survey for October probably will show a more significant deterioration, unless the shutdown ends very soon," said Oliver Allen, senior U.S. economist at Pantheon Macroeconomics.

Stocks on Wall Street fell after President Donald Trump threatened higher tariffs on Chinese imports. The dollar slipped against a basket of currencies. U.S. Treasury yields were lower.

THE LABOR MARKET HAS SOFTENED

Consumers were pessimistic about future personal finances and their views on current buying conditions for long-lasting manufactured goods were unfavorable. Before the government data blackout, the labor market had softened, with job growth almost stalling in the three months to August.

Economists have blamed Trump's trade and immigration policies as well as the growing popularity of artificial intelligence for the labor market's struggles, marked by low demand for workers and a smaller labor pool.

Still, they expected consumer spending to remain solid in the third quarter, thanks to a stock market rally.

"Many consumers are feeling the strain of the weaker job market, but many are also sitting on a substantial wealth cushion," said Oren Klachkin, financial market economist at Nationwide. "The recent decline in the savings rate suggests consumers are willing to spend despite their various fears."

The survey's measure of consumer expectations for inflation over the next year fell to a still-high 4.6% this month from 4.7% in September. Consumers' expectations for inflation over the next five years were unchanged at 3.7%.

Despite the high inflation expectations, economists said the Federal Reserve would still deliver another interest rate cut at its Oct. 28-29 meeting. The Fed resumed easing policy in September, cutting its benchmark overnight interest rate by 25 basis points to the 4.00%-4.25% range, to aid the jobs market.

"The inflation expectations reported in this report are clearly unacceptable to the Fed," said Carl Weinberg, chief economist at High Frequency Economics. "However, this survey is only one of many inputs that the Fed looks at to gauge inflation expectations."

(Reporting by Lucia Mutikani; Editing by Nick Zieminski)