Consumer confidence in the United States weakened in early August as households reported growing worry about living costs connected to a Middle East conflict, according to the latest University of Michigan survey released on Friday.
The survey's headline measure, the Consumer Sentiment Index, fell to 51.0 this month, down from 55.2 in July. That reading was lower than the 54.5 forecast by economists polled by Reuters and ended a two-month stretch of rising sentiment.
The softening in confidence was broadly distributed across the population. Political affiliation showed marked differences in the magnitude of the drop, with Republicans experiencing a notably sharper monthly decline compared with other groups.
"Sentiment among Republicans is now 19% below readings just prior to the Iran conflict and the lowest since the 2024 election," said Joanne Hsu, director of the Surveys of Consumers. "Although the early-month weakening in sentiment was pervasive across various demographic groups, notably large reductions were seen among older consumers, lower-income consumers, and those without a college degree."
The survey also recorded a modest uptick in short-term inflation expectations. Consumers now anticipate inflation of 4.3% over the next year, up from 4.2% in July. Expectations for inflation over a five-year horizon remained unchanged at 3.3%.
Together, the decline in the sentiment index and the rise in near-term inflation expectations indicate a more cautious mood among households in the early part of August. The University of Michigan's findings highlight which demographic cohorts registered the largest weakening in confidence, while also documenting the persistence of elevated one-year inflation expectations.
Key points
- The University of Michigan Consumer Sentiment Index dropped to 51.0 in early August from 55.2 in July, below the 54.5 Reuters forecast.
- Republicans registered a particularly sharp monthly decline; older consumers, lower-income households, and those without a college degree saw notably large reductions.
- One-year inflation expectations rose to 4.3% from 4.2% in July, while five-year expectations stayed at 3.3%.
Risks and uncertainties
- Short-term inflation expectations increased - a development that could heighten household cost concerns; the survey links rising living-cost worries to a Middle East conflict.
- Confidence deterioration among specific demographic groups - older consumers, lower-income households, and those without a college degree - introduces uncertainty about near-term consumer spending patterns in those cohorts.
- Political-group sentiment shifts - the large drop among Republicans, now 19% below readings before the Iran conflict, adds uncertainty to the stability of overall consumer confidence.
The survey provides a snapshot of sentiment early in the month and documents how geopolitical developments and inflation expectations coincided with a broad-based weakening in household confidence. The University of Michigan release did not provide sector-specific breakdowns of the impact.