U.S. consumer sentiment has dwindled in August, with shoppers girding for greater tariff-related inflation and reduced discretionary spending, according to survey data released Friday by the University of Michigan.
The university’s index of consumer sentiment, which measures attitudes about the economy, dipped 5% this month to 58.6 from a 61.7 reading in July. Economists polled by Reuters had predicted the index would increase slightly to 62.0.
Joanne Hsu, director of Surveys of Consumers at the University of Michigan, noted that the deterioration in consumer sentiment “largely stems from rising worries about inflation.” Those concerns eased over the past two months following May’s near record-low index reading of 50.8 stemming from the initial sticker shock of the Trump administration’s global tariff rollout, but consumers now appear to be treading cautiously again.
Data released this week by the U.S. Bureau of Labor Statistics showed that the consumer price index, a widely tracked measure of inflation that’s part of the Federal Reserve’s calculus when setting interest-rate policy, rose 0.2% month over month in July and 2.7% on a 12-month basis. But the producer price index, which measures the wholesale costs of goods and services before they reach the consumer, rose by an alarming 0.9% last month, suggesting that further consumer pricing pressures may be forthcoming.
A separate University of Michigan index that gauges consumer attitudes about current economic conditions fell 10.4% this month to a 60.9 reading, which represents a 0.7% year-over-year dip. The forward-looking index of consumer expectations fell just 0.9% in August but is 20.7% lower than a year ago.
“Overall, consumers are no longer bracing for the worst-case scenario for the economy feared in April when reciprocal tariffs were announced and then paused,” Hsu observed. “However, consumers continue to expect both inflation and unemployment to deteriorate in the future.”
Year-ahead inflation expectations among consumers rose from 4.5% last month to 4.9% in August, Hsu noted. As a result, only about 24% of consumers expect to maintain their typical spending patterns on items that have large price increases.
Among those who expect to curtail discretionary spending, 19% said they would be less likely to buy a car, 17% anticipate reduced spending on household items and 14% plan to eat out less frequently.
“Consumers currently expect labor markets to weaken, which would reduce their income prospects and their ability to spend,” Hsu stated.
