U.S. consumer sentiment declined sharply in early August, with the University of Michigan's Consumer Sentiment Index dropping to 51.0 from 55.2 in July, driven by concerns over the rising cost of living and the conflict in the Middle East.
The deterioration in U.S. consumer sentiment signals potential headwinds for consumer spending, a key driver of economic growth, and indicates growing concerns about inflation and geopolitical instability.
U.S. consumer sentiment experienced a significant slump in early August, primarily due to concerns about the rising cost of living, exacerbated by the conflict in the Middle East. The University of Michigan's Surveys of Consumers reported that its Consumer Sentiment Index fell to 51.0 in early August, a decrease from 55.2 in July and below the 54.5 forecast by economists. This downturn ended a two-month period of improvement in consumer sentiment.
The decline was widespread across the political spectrum, with Republicans showing a particularly sharp month-to-month drop. Joanne Hsu, director of the Surveys of Consumers, noted that sentiment among Republicans is now 19% below readings prior to the Iran conflict and at its lowest point since the 2024 election. Reductions were also notably seen among older consumers, lower-income consumers, and individuals without a college degree.
Furthermore, consumer expectations for inflation over the next year increased to 4.3% from 4.2% in July, while expectations for the next five years remained unchanged at 3.3%.