August Sentiment Decline Ends Two-Month Rebound
Consumer sentiment fell 7.6% month-over-month in August, erasing gains from the prior two months as inflation worries linked to Middle East conflict dampened confidence. The University of Michigan survey also showed business conditions expectations dropping 11% for the short term and 17% for the long term.
The August reading fell short of both Reuters and Bloomberg economist forecasts, which had predicted 54.5 and 55, respectively. The downturn was widespread, with Republicans showing the steepest monthly decline, leaving their sentiment 19% below pre-conflict levels and at its lowest since the 2024 election. Older adults, lower-income households, and those without a college degree also recorded notable drops.
Year-ahead inflation expectations rose to 4.3%, surpassing every 2024 reading and the 3.4% seen before the Iran conflict. Only 8% of consumers now expect income growth to outpace inflation, down sharply from 18% in December 2024. The survey period, spanning late July to early August, coincided with national average gasoline prices remaining above $4 per gallon.
This prolonged dip in confidence could dampen discretionary spending on travel and lifestyle services, as households prioritize essential costs amid elevated fuel prices. Lower-income and older consumers, who reported the steepest declines, may reduce leisure travel and non-essential purchases. If inflation expectations stay high, travel-related businesses could face softer demand, potentially leading to cautious hiring or pricing adjustments. Lingering uncertainty may also delay major household financial commitments.