Consumer sentiment falls in August amid uncertainty about Iran war

Consumer sentiment dropped more than expected this month, ending two months of improvement.Consumer sentiment fell to 51, down from 55.2 in July, according to a preliminary reading of the University of Michigan Consumer Sentiment Index for August. That’s nearly an 8% decline from the month before. Sentiment is down 12.4% from a year ago. Declines in consumer sentiment were seen across the political spectrum, with Republicans posting the biggest monthly decline, according to the survey. Republican sentiment is down 19% from before the conflict with Iran kicked off earlier this year.“Although the early-month weakening in sentiment was pervasive across various demographic groups, notably large reductions were seen among older consumers, lower-income consumers, and those without a college degree,” said Joanne Hsu, the survey director.“These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation,” she added. “Across all consumers, only 8% expect their income growth to exceed inflation in the year ahead, down from 18% in December 2024, a reflection of the belief that high prices will continue to be burdensome.”Year-ahead inflation expectations ticked from 4.2% last month to 4.3% in August. That is an increase from the 3.4% level measured before the war with Iran kicked off.Meanwhile, for the third month in a row, long-run inflation expectations remained at 3.3% in August.The lower sentiment readings come as the country continues to experience years of too-high inflation.CPI inflation fell one-tenth of a percentage point in July to 3.4%, and last month alone it only rose 0.1%. Inflation, as measured by the PPI, fell eight-tenths of a percentage point to 4.7% for the year ending in July — more than expected.Despite recent declines, inflation remains well above the Federal Reserve’s 2% target, and consumers are feeling the pain of years of cumulative inflation.SOFTER INFLATION REPORTS MAY PUSH BACK RATE HIKEThe labor market is also feeling a bit of a slowdown in recent weeks.The government reported that the economy lost 23,000 jobs in July, a major surprise to the downside.