Consumers are becoming somewhat more cautious about the economy

Minneapolis
CNN
—

American attitudes towards the US economy appear to be weakening.

The closely-watched University of Michigan Consumer Sentiment Index came in at 69.5 in August, down slightly from July. The value is in line with estimates published earlier this month.

“Consumers perceive that the economy’s rapid improvements have slowed over the past three months, particularly due to inflation, and are cautious about the future outlook,” Joanne Hsu, the university’s head of consumer surveys, said in a statement.

Sentiment moved essentially “sideways” in August, Hsu said. Slight consumer concern bucks the recent trend of a sharp rise in optimism. But August’s reading is still well above last summer’s lows, when inflation surged to decades-long highs.

“This month’s reading reflects diverse consumer views. Some emphasize the marked improvement from last summer’s excessively high inflation, while others focus on the lack of any significant changes in economic conditions this month,” Hsu said. “With income expectations high, consumers may be hoping for a rebound in the economy, but for now they’re reserving judgment.”

The Conference Board’s Consumer Confidence Index and the University of Michigan’s twice-monthly Consumer Sentiment Index are two important indicators of how Americans feel about the current and future strength of the economy.

Although the two indexes typically move similarly over time, the consumer confidence index is more influenced by employment and job market conditions, while Michigan’s sentiment index has a greater emphasis on household finances and the impact of inflation.

Inflation expectations for the coming year fell to 3.3% from 3.4% in July, showing “remarkable stability” but still beating pre-pandemic expectations, which ranged between 2.3% and 3%.

Inflation expectations are crucial data points for the Federal Reserve. If consumers assume that prices will remain high, this could lead to higher wage demands, which could prompt companies to raise prices and put upward pressure on inflation.