Consumer Sentiment Closes August Down 1.7%

Ann Arbor, MI, August 31, 2018-August consumer sentiment fell 1.7% to 96.2 from July’s 97.9 rate, according to final results from the University of Michigan Survey of Consumers.

This represents a 0.6% change year over year.

“Although there was a small uptick in late August, consumer sentiment remained at its lowest level since January,” says Survey of Consumers chief economist, Richard Curtin. “Most of the August decline was in the Current Economic Conditions Index, which fell to its lowest level since November 2016. These results stand in sharp contrast to the recent very favorable report on growth in the national economy. The dominating weakness was related to less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices and to a lesser extent, rising interest rates. Future income and job certainty have become the main reasons cited by consumers for their positive spending views (see the chart). This shift from attractive prices and interest rates to income is typical of the later stages of expansions, with references to income and job certainty peaking just before downturns. While nominal wage expectations and employment gains have remained strong, the anticipated inflation rate has also increased to its highest level in four years. Although a higher inflation rate is partly due to the potential for increased tariffs, the main cause has been the expectation of robust economic growth. Luckily, consumers have not yet judged the current rate of inflation as a significant source of erosion in their living standards or as a cause to reduce their buying plans. Achieving a soft-landing is always difficult, and especially so when monetary policy must lean against expansionary fiscal policies. Personal consumption can be expected to grow by 2.6% in the year ahead.”