US Consumer Sentiment Falls As Inflation Expectations Climb

US consumer sentiment unexpectedly fell for the first time since April and inflation expectations rose on lingering anxiety about the impact of tariffs.

The preliminary August sentiment index fell to 58.6 from 61.7 a month earlier, according to data from the University of Michigan released Friday.

Consumers expect prices to rise at an annual rate of 4.9% over the next year, wiping out the prior month's improvement. They saw costs rising at an annual rate of 3.9% over the next five to 10 years.

Both the sentiment index and the inflation gauges were worse than economists had anticipated in a Bloomberg survey.

“Consumers continue to expect both inflation and unemployment to deteriorate in the future,” Joanne Hsu, director of the survey, said in a statement.

The survey was conducted from July 29 to Aug. 11. Recent government data showed job growth slowed notably in recent months. Roughly 62% of consumers expect unemployment to rise in the year ahead, an increase from the prior month.

A separate report released by the University of Michigan Friday showed 58% of consumers plan to cut back on spending this year as they brace for further inflation. Respondents cited anticipating pulling back on purchases including cars, household items and meals out.

“Consumers expressed throughout the interviews that their concerns about current high prices have returned to prominence this month after waning somewhat earlier in the summer,” Hsu said.

The group's gauge of buying conditions for durable goods plunged to the lowest level in a year.

A separate report released earlier Friday showed US retail sales rose for a second month in July, fueled by broad-based demand for merchandise.

The sentiment survey showed the current conditions gauge fell to a three-month low of 60.9, while the expectations index notched down to 57.2.

Nearly a third of respondents expect interest rates to fall in the year ahead, largely driven by partisan differences. The gap between Republicans, who generally expect borrowing costs to fall, and Democrats, who do not, is the largest on record, according to the report.

Source: Bloomberg Europe