Key Highlights

  • The University of Michigan consumer sentiment index fell 7.6% to 51 in August, reversing two months of gains.
  • US retail sales dropped 0.6% in July, the sharpest monthly decline in more than a year.
  • Consumers expect prices to rise 4.3% over the next year, up from 4.2% in July and 3.4% before the current conflict began.
  • Grocery store spending fell nearly 2% year-over-year in July after adjusting for inflation.

Sentiment Falls Sharply Among Lower-Income Households

US consumer sentiment declined sharply in August, according to University of Michigan data released Friday, with older and lower-income Americans particularly affected by elevated fuel prices. The sentiment index dropped 7.6% to 51, reversing two months of improvement from an all-time low of 44.8 reached in May. Inflation expectations rose alongside the decline, with consumers anticipating a 4.3% increase in prices over the next year, up from 4.2% in July and 3.4% before the current conflict began.

Sentiment fell most sharply among lower-income groups, who spend a larger share of their income on food and energy. The decline was also notably strong among Republican-identifying consumers, whose sentiment is now 19% lower than before the conflict began.

Retail Sales Post Sharpest Drop in Over a Year

Separate data from the Census Bureau showed retail sales fell 0.6% in July compared with the previous month, the sharpest decline in more than a year. The pullback was driven partly by the shift of Amazon's Prime Day promotional event to June, which cooled ecommerce sales the following month, though average spending across the two months remained below May's level. Grocery store spending fell nearly 2% year-over-year in July after adjusting for inflation, as rising food and energy costs, along with reduced benefit programs, forced many households to cut back.

Economists Expect Further Slowdown as Tax Refund Boost Fades

Annual inflation reached a three-year high of 4.2% in May before easing to 3.4% in July, though day-to-day costs remain elevated for many households. Economists said the temporary boost to household spending from earlier tax refunds has now been exhausted, while rising energy prices and weak income growth are expected to weigh further on consumer spending in the coming months.