US consumer sentiment is expected to decline in August, with the University of Michigan's Consumer Sentiment Index projected to drop to 54.5 from 55.2 in July. According to the latest market consensus, this represents a moderate decline that would remain relatively close to levels seen in January and February, when concerns about Iran's war and the economic impact of the energy shock were absent. The decline would highlight fairly resilient sentiment in the face of uncertainty surrounding the Middle East conflict, a deteriorating labour market, and stubbornly high price pressures. The Index of Consumer Expectations is expected to slide to 50.6 from 55.4, while the Current Economic Conditions Index is projected to decline to 51.8 from 54.8, with expected business conditions sinking 11% for the short run and 17% for the long run. The Index of Consumer Expectations fell to 50.6 from 55.4, and the Current Economic Conditions Index dropped to 51.8 from 54.8, with expected business conditions sinking 11% for the short run and 17% for the long run, according to the survey.
The sentiment decline was particularly pronounced among Republican consumers, who experienced the largest month-to-month drop among all political groups. As reported by Reuters, Joanne Hsu, director of the University of Michigan Surveys of Consumers, noted that sentiment weakened across all political affiliations, with Republicans experiencing the sharpest monthly fall. Hsu emphasized that Republican sentiment now sits 19% beneath levels recorded just prior to the Iran conflict and marks the lowest point since the 2024 election. The survey revealed that large reductions were seen among older consumers, lower-income consumers, and those without a college degree - demographics characterized as especially susceptible to any weakening of purchasing power due to inflation. This political divide was part of a broader-based decline that affected households across the economic spectrum.
Despite the overall sentiment decline, US consumers' one-year inflation expectations increased to 4.3% in August from 4.2% in July. According to the latest University of Michigan survey data, this rise in near-term inflation expectations was directly linked to concerns over the Middle East conflict's impact on living costs. Year-ahead inflation expectations rose to 4.3%, exceeding the 3.4% figure from February which preceded the outbreak of the Iran conflict and surpassing all 2024 readings. Five-year inflation expectations remained unchanged at 3.3%, indicating that consumers are more concerned about immediate price pressures rather than longer-term inflation trends. Just 8% of consumers foresee their income growth outpacing inflation over the coming year, a sharp fall from 18% in December 2024. The Nonfarm Payrolls report showed that net employment contracted unexpectedly in July, highlighting a sharp deterioration of the labour market that is highly likely to dent consumer confidence.
The survey incorporated responses gathered from July 28 through August 10, a timeframe during which West Texas Intermediate (WTI) Oil prices are more than 15% above the levels in early July, when the interviews for last month's report took place. This period of elevated fuel costs contributed to sustained pressure on consumer sentiment. The August data extends a turbulent stretch for consumer confidence that began when conflict in the Middle East disrupted oil markets and drove up gasoline prices. The June recovery was driven in part by falling gasoline prices, though consumers remained worried about the cost of living, with a July gain extending that rebound before August's reversal. The University of Michigan plans to issue its final August reading on Friday, August 28, with the market consensus hinting at a moderate pullback from July's reading, although showing levels not far from the 2026 peak. The US Dollar remains weighed by dwindling hopes of Fed rate hikes, with the USD Index (DXY) showing a mild upside bias after finding support at the 99.45 area.
