US consumers are feeling less optimistic about the economy for the first time this summer
Americans became slightly more gloomy about the economy this month
By Bryan Mena, CNN
Washington, DC (CNN) — Americans became slightly less optimistic about the economy this month, following two straight months of growing confidence.
Consumer sentiment tracked by the University of Michigan fell to 71.2 in August from the prior month, down from a reading of 71.6 in July, according to a preliminary estimate. Sentiment had been on an upswing throughout the summer, mostly due to slower inflation, and is well above the record lows reached this time last year.
“In general, consumers perceived few material differences in the economic environment from last month, but they saw substantial improvements relative to just three months ago,” said the University of Michigan’s Director of Surveys, Joanne Hsu, in a release.
Expectations for inflation rates in the year ahead inched down to a 3.3% rate from 3.4% in the previous reading.
Signs of cooling inflation
Gas prices, which are highly visible indicators of inflation for consumers, have risen in recent weeks, which could weigh on sentiment in the future. And the Consumer Price Index rose 3.2% in July from a year earlier, up from June’s 3% annual rise, though underlying price pressures continued to ease.
“The University of Michigan’s measure of consumer confidence edged lower in August but is likely set to drop even further because of the recent increase in retail gasoline prices,” wrote Ryan Sweet, chief US economist at Oxford Economics, in an analyst note. “Rising gasoline prices have economic costs and they can escalate quickly.”
If inflation continues to cool down in the months ahead, that will likely bode well for consumer sentiment. Recent research from the Federal Reserve Bank of San Francisco argues that shelter inflation is poised to fall significantly, reaching 0% in 2024 then turning negative by the second half of the year. Still, consumers face the resumption of student loan payments later this year, and that could weigh on household budgets.
“The Michigan survey puts a large weight on perceptions of personal finances, which are likely to take a hit when repayments on student loan debts restart in October,” wrote Kieran Clancy, senior US economist at Pantheon Macroeconomics, in a note Friday.
if sentiment sharply deteriorates and remains subdued for months, that could prompt a pullback in spending since US consumers would limit their purchases in an uncertain economic environment.
Strong spending — for now
Consumer spending cooled steadily from a strong start in January, but it picked up in June by 0.5%, following a more moderate pace in prior months, according to Commerce Department data. US consumers opened up their wallets this summer, with many flocking to the smash-hit “Barbie” movie, attending concerts by Taylor Swift or Beyoncé, or traveling abroad.
At its policy meeting next month, the Federal Reserve is set to debate whether to hike interest rates once again or hold them steady. A sharp resurgence in economic growth might keep some upward pressure on prices, complicating the central bank’s mission of bringing inflation down to its 2% target.
The Atlanta Fed’s real-time GDPNow tracker estimates that gross domestic product will post an annualized rate of 4.1% in the third quarter. That would be a significant pickup from the second quarter’s 2.4% rate.
The first estimate for third-quarter GDP is set to be released on October 26, just a few days before the Fed’s meeting that month.
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