University of Michigan’s consumer sentiment survey fell for the first time in three months as households worried about worsening inflation and deteriorating business conditions.

The university’s preliminary August sentiment index decreased to 51 in August, according to the survey released Friday, from a final reading of 55.2 in July. The median forecast from a Bloomberg survey of economists had projected a reading of 55.

The index is down 12.4 percent year over year but remains above the recent lows reached in the spring, when gasoline prices were soaring.

Surveys of Consumers Director Joanne Hsu said, “Consumer sentiment fell about 8 percent this August, ending two consecutive months of improvement. While views of personal finances saw only minor declines, expected business conditions sank 11 percent for the short run and 17 percent for the long run. Decreases in sentiment were seen across the political spectrum, with Republicans exhibiting the strongest month-to-month decline in August. Sentiment among Republicans is now 19 percent below readings just prior to the Iran conflict and the lowest since the 2024 election. 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. These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation. Across all consumers, only 8 percent expect their income growth to exceed inflation in the year ahead, down from 18 percent in December 2024, a reflection of the belief that high prices will continue to be burdensome.

“Year-ahead inflation expectations ticked up from 4.2 percent in July to 4.3 percent this month. The current reading substantially exceeds the 3.4 percent seen in February before the Iran conflict began, along with all 2024 readings. Long-run inflation expectations held steady at 3.3 percent for the third consecutive month, remaining a bit higher than its 2024 range of 2.8 percent to 3.2 percent.”

Image courtesy Costco / Chart courtesy University of Michigan