Consumer Sentiment Drops Sharply In August. It’s More Than 10 Points Lower Than 2025.

Consumer sentiment declined sharply in August, falling 6% compared to the previous month. The figure stood at 51.7, according to the University of Michigan's survey of consumers. It compares to 55.2 in July and 58.2 in August of last year, an 11% drop.

Surveys of Consumers Director Joanne Hsu said the reading shows "continued worries that inflation will remain elevated for the foreseeable future."

She went on to detail that declines could be seen "for all political groups and were particularly acute among Republicans," and that "groups who are typically less-equipped to absorb increases in cost of living also exhibited stronger decreases in sentiment, including older consumers, lower- and middle-income consumers, and those with no stock holdings.

Hsu added that, considering "ongoing policy uncertainty including the Iran conflict," consumers now "anticipate further increases in gasoline prices both in the short and long run."

"Expected year-ahead business conditions fell back 10%, along with a 13% drop for the five-year horizon. Any re-escalation of trade tensions will likely exacerbate these trends," Hsu said.

As for inflation expectations, figures showed that year-ahead ones decreased slightly, ticking down from 4.2% to 4.0%. "The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings. Long-run inflation expectations held steady at 3.3% for the third consecutive month, remaining a bit higher than its 2024 range of 2.8% to 3.2%," the report noted.

Federal Reserve Chair Kevin Warsh delivered his outlook for the economy in Jackson Hole on Friday, saying that even though recent inflation readings have been "better than expected, they do not tell me that underlying trends have meaningfully improved." He claimed that if the trend doesn't move down in the future, the central bank will have "work to do."

However, he did not offer guidance about the central bank's next moves, speaking against "oversharing" policy deliberations.

However, he then issued a warning: "our knowledge just doesn't extend that far—at least not yet—and the factors most relevant to the proper conduct of monetary policy change over time."

"In my term as Chairman, my colleagues and I will endeavor to construct more reliable models and more robust rules to guide policy decisions. We'll do this knowing that accuracy in economic forecasting is still just an aspiration. With so much changing so fast in geopolitics, global supply chains, and technology, it's wise to be modest about what we can and cannot know," Warsh added.

Elsewhere, Warsh expressed confidence in the economy, saying it "appears to have strengthened." He also lauded economic benefits from AI and said business and consumer spending has held up.