Consumers Are Growing More Concerned About the Economy

August 25, 2023

American consumers’ attitudes toward the economy have grown slightly more cautious over the summer. 

The University of Michigan’s consumer sentiment index pulled back from the 22-year high it reached in July, dipping to 69.5 in August. According to a statement from the University, the downturn reflects consumer perceptions that “the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead.”

While the University of Michigan’s consumer sentiment index and The Conference Board’s consumer confidence index generally track similarly over time, the Michigan sentiment index puts a stringer emphasis on household finances and the impact of inflation.

Inflation expectations for the next 12 months ticked up from 3.4% to 3.5% in August. This is of particular concern for the Federal Reserve, as inflation expectations can become something of a self-fulfilling prophecy. If consumers believe prices will be higher in the months ahead, they will be more likely to push for higher wages. To keep up with higher labor costs, employers raise prices, driving inflationary pressure.

The month’s downturn may also be attributable to higher gasoline prices. The average price for a gallon of gas today is  $3.82, up from $3.62 last month. Economists have noted that gasoline prices weigh heavily on household’s perception of their finances, so future consumer sentiment readings may be lower until consumers get a break at the pump.


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