US Consumer Sentiment Drops to 51 in August

U.S. consumer sentiment fell approximately 8% in August, ending a two-month period of improvement. The University of Michigan preliminary index dropped to 51.0 from 55.2 in July, driven by household concerns over inflation linked to conflict in the Middle East and disrupted oil markets that pushed gasoline prices above $4 a gallon.

Rising prices are a primary driver of the decline, with 43% of consumers reporting that high costs are eroding their living standards. Year-ahead inflation expectations rose to between 4.3% and 4.8%, surpassing levels seen before the Iran conflict erupted. Only 8% of consumers expect their income growth to outpace inflation over the next year.

The downturn was broad-based but hit specific demographics hardest. The steepest declines occurred among Republicans, lower-income groups, older consumers, and those without college degrees. Additionally, 63% of consumers expect unemployment to rise in the coming year, while short-run business conditions decreased by nearly 8%. Long-term inflation outlooks remained more stable at 3.3%.