Consumer Confidence Drops 5.7% in August Amid Inflation, Tariff Fears

Consumer confidence in the United States has taken a significant hit in August, falling to its lowest point in three months. This decline is largely attributed to the lingering uncertainties surrounding tariffs and persistent inflation concerns, which continue to weigh heavily on the economic outlook.

The University of Michigan's latest survey revealed that the final consumer confidence index for August dropped to 58.2, down from 61.7 in July and below the initial estimate of 58.6. The data indicates that consumers anticipate a 4.8% annual increase in prices over the next year, up from 4.5% in the previous month. While the long-term inflation expectation for the next 5 to 10 years has slightly improved to 3.5% from an initial estimate of 3.9%, it remains higher than the July figure.

The report also highlights growing anxieties among consumers regarding employment and business conditions. Approximately 63% of respondents expect the unemployment rate to rise in the coming year, a figure that is not only higher than the previous month but also significantly above the same period last year. Market analysts widely anticipate that the upcoming August non-farm payroll report will show moderate job growth. Federal Reserve Governor Christopher Waller expressed support for a rate cut in September and hinted at the possibility of further easing in the next six months to bolster employment prospects.

Consumer sentiment towards purchasing big-ticket items and automobiles has notably deteriorated. Joanne Hsu, the director of the University of Michigan's survey, noted that an increasing number of consumers are citing high prices and tax/tariff factors, particularly in the context of car purchases. This suggests that financial pressures on households could further dampen consumer spending, which is a critical driver of economic growth in the U.S.

Despite the decline in consumer confidence, data released by the government shows that consumer spending in July increased at the fastest pace in four months, driven by rising incomes. This data also reflects the impact of price pressures on consumer sentiment. The core PCE price index, excluding food and energy, rose to 2.9% year-over-year in July, the highest level since February.

The University of Michigan's sub-indexes show that the index measuring future expectations fell to 55.9, the lowest in three months and below the initial estimate of 57.2. The current conditions index also declined to 61.7 from the previous month. The survey was conducted between July 29 and August 25.