Key Takeaways
- Consumers felt worse about the economy in August as a closely-followed survey showed increased worries about inflation and the labor market.
- It’s the first time in four months that consumer sentiment has declined.
- Newly-enacted tariffs raised new concerns, sending consumer inflation expectations higher in both the short- and long-term.
Inflation worries surged this month for consumers, who are growing more concerned about the state of the economy.
The closely-followed Michigan Consumer Sentiment Index for August fell to 58.6% in its preliminary reading issued today. The decline surprised economists, who expected the index to increase again this month, according to a survey by The Wall Street Journal and Dow Jones Newswire.
It’s the first time in four months that sentiment has declined. This comes after consumers’ feelings about the economy rebounded last month, when President Donald Trump’s tariffs didnt appear to do as much damage as expected. However, a weak jobs report and persistently high inflation are dampening the vibe for consumers.
“Overall, consumers are no longer bracing for the worst-case scenario for the economy [that was] feared in April when reciprocal tariffs were announced and then paused,” said the survey’s director Joanne Hsu. “However, consumers continue to expect both inflation and unemployment to deteriorate in the future.”
Inflation Expectations Surge on Renewed Tariff Worries
As several new tariffs take effect, consumer inflation worries have shot higher. Expected price increases for the year ahead jumped to 4.9% from 4.5% in July, according to the survey.
“The latest round of tariff announcements jumpstarted inflation concerns for many households that drag on assessments of current economic conditions,” said Nationwide Senior Economist Ben Ayers.
Long-run inflation expectations also spiked, indicating that consumers expect price pressures to stick around. Inflation expectations are closely followed by economists because they can become self-fulfilling as price hikes and wage hikes rise in a vicious cycle.
‘Soft’ and ‘Hard’ Data Remain Out of Step
The “soft” consumer survey data was once again out of line with the “hard” economic data in the July retail sales report, also released today, that showed consumer spending increased last month. Other recent reports have shown a trend of consumer sentiment moving in a different direction than the economic data.
“Retail spending was solid in August, once again driving a wedge between the hard and soft data,” Ayers said. “But the overarching caution expressed by many respondents in recent months implies a weaker pace of consumer spending over the rest of 2025 as households look to tighten budgets.”
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