Worsening economic outlook drags down consumer sentiment

Consumer sentiment fell in August for the first time in three months on a worsening economic outlook, even as expectations for inflation in the year ahead eased.

The University of Michigan’s sentiment index decreased to 51.7 in August, according to data released Friday.

The final reading was slightly improved from the preliminary reading and above the median estimate in a Bloomberg survey of economists.

The report also showed that consumers expect prices to rise at an annual rate of 4% over the next year, the lowest reading since March but still historically elevated.

Consumers continue to worry that “inflation will remain elevated for the foreseeable future,” Joanne Hsu, director of the survey, said in a statement.

“In addition to the pocketbook issues that have been central to consumers’ views of the economy, they are increasingly worried that prospects elsewhere in the economy could be weakening,” she added.

Consumers’ views about the economy in the year ahead and five years ahead both deteriorated in August.

Measures of current economic conditions and consumer expectations also declined from a month earlier. Sentiment among Republicans slumped to the lowest since November 2024.

The drop in sentiment shows households continue to face pressure from elevated costs as the conflict in the Middle East drags on.

National average gasoline prices held above $4 a gallon across August, and broader inflation has eroded incomes.

Hsu said consumers expect higher prices at the pump in the future.

In the longer term, consumers see overall prices climbing at an annual rate of 3.3% over the next five to 10 years.

The survey period includes responses from July 28 to Aug. 24.

Fanzeres writes for Bloomberg.