Consumer sentiment fell in August as consumers remain concerned about the economy, according to this month’s University of Michigan Surveys of Consumers.
The index for consumer sentiment fell 2.6 percent to 67.7 from 69.5 in August, which was still 15.5 percent higher than the year-ago mark of 58.6 and significantly higher than the record low set in June 2022. However, the index remains 18.5 points below the historical average of 86.
The index for current economic conditions fell nearly 8 percent to 69.8 from 75.7 last month, but remains nearly 17 percent above its September 2022 mark of 59.7. The index of consumer expectations increased 1.2 percent to 66.3, which is 14.3 percent higher than its year-ago mark of 58.
Consumers expect inflation to continue to slow as year-ahead inflation expectations fell from 3.5 percent in August to 3.1 percent this month, its lowest mark since March 2021 and slightly higher than the 2.3 percent to 3 percent range in the two years leading up to the pandemic. Long-term inflation expectations were at 2.7 percent, under the 2.9 percent to 3.1 percent range for only the second time in the last 26 months.
“Both short-run and long-run expectations for economic conditions improved modestly this month, though on net consumers remain relatively tentative about the trajectory of the economy,” said Surveys of Consumers Director Joanne Hsu. “So far, few consumers mentioned the potential federal government shutdown, but if the shutdown comes to bear, consumer views on the economy will likely slide, as was the case just a few months ago when the debt ceiling neared a breach.”
The Conference Board’s Consumer Confidence Index fell to 106.1 from 114 in July, while the index based on consumer assessments of current business and labor market conditions fell to 144.8 from 153. The short-term outlook for income, business and the labor market conditions fell to 80.2 from 88 in July.
Chief Economist Dana Peterson said the drop in the index was especially notable in consumers with household incomes of at least $100,000, as well as those earning less than $50,000. The Conference Board anticipates a recession will begin before the end of this year.
“August’s disappointing headline number reflected dips in both the current conditions and expectations indexes,” said Chief Economist Dana Peterson. “Write-in responses showed that consumers were once again preoccupied with rising prices in general, and for groceries and gasoline in particular.”
United Bankers Bank Vice President of Risk Management James Nowak also sees a looming recession with unemployment reaching 5.8 percent by next summer. He expects the Fed will lower interest rates next year as the economic downturn becomes clear.
To Nowak, the economy has already undergone rolling recessions since the end of 2022, initially with downturns in both the equities and housing markets. Banks are already tightening credit standards, which diminishes loan growth, Nowak noted.
Nowak said the only factor preventing the economy from falling into a recession has been the excess amount of government stimulus checks during the pandemic along with bans on evictions and pause on student loan payments. He expects the economy will worsen as student loan payments resume and gasoline remains at more than $4 per gallon.