The University of Michigan's final consumer sentiment index for August came in at 51.7, above the preliminary estimate of 51.0 and down from July's reading of 55.2. The monthly index, based on surveys of U.S. households, is one of the most closely watched barometers of consumer attitudes toward the economy, spending, and prices, and the August level remains historically weak — not far above the survey's all-time low of 50.0 recorded in June 2022.

Current conditions were reported at 51.9, versus the preliminary figure of 51.8 and July's 54.8. Consumer expectations registered 51.5, up from the preliminary reading of 50.6 but down from 55.4 in the prior month.

One-year inflation expectations eased to 4.0%, down from the 4.3% preliminary reading and July's 4.2%. Five-year inflation expectations held at 3.3%, matching the preliminary figure and the prior month's 3.3%. Policymakers at the Federal Reserve track these measures closely because persistently elevated inflation expectations can feed into wage- and price-setting behavior, complicating efforts to bring inflation back toward the Fed's 2% goal.

Survey director Joanne Hsu commented: "Consumer sentiment confirmed its early month reading, falling about 6% from last month and landing about 11% below a year ago amid continued worries that inflation will remain elevated for the foreseeable future. Sentiment declines in August were seen for all political groups and were particularly acute among Republicans. Moreover, groups who are typically less-equipped to absorb increases in cost of living also exhibited stronger decreases in sentiment, including older consumers, lower- and middle-income consumers, and those with no stock holdings."

"With ongoing policy uncertainty including the Iran conflict, consumers anticipate further increases in gasoline prices both in the short and long run," Hsu said. "In addition to the pocketbook issues that have been central to consumers' views of the economy, they are increasingly worried that prospects elsewhere in the economy could be weakening. Expected year-ahead business conditions fell back 10%, along with a 13% drop for the five-year horizon. Any re-escalation of trade tensions will likely exacerbate these trends."

The release covers interviews completed between July 28 and August 24.

Year-ahead inflation expectations ticked down from 4.2% in July to 4.0%. The current reading substantially exceeds the 3.4% seen in February, before the Iran conflict began, as well as all 2024 readings. Long-run inflation expectations held steady at 3.3% for the third consecutive month, remaining somewhat higher than the 2024 range of 2.8% to 3.2%.

Market attention now turns to the Federal Reserve Chair's speech from Jackson Hole, the annual economic policy symposium where investors look for signals on the near-term interest rate path.

Source: Investinglive