Consumer confidence in the United States unexpectedly weakened, with inflation expectations remaining elevated, while retail sales also cooled. This combination has renewed market concerns about the resilience of American consumption and the broader economic outlook.
The University of Michigan's preliminary August report, released on Friday, showed the consumer sentiment index dropping to 51, down from July's final reading of 55.2. This figure was also notably below the Bloomberg economist survey median of 55, marking the first decline in three months. Meanwhile, consumers' one-year inflation expectations rose to 4.3%, up from 4.2% in the prior month, remaining significantly above levels seen before the Middle East conflict.
Consumer spending data also signaled a slowdown. US retail sales in July posted their largest monthly decline in over a year, with both auto sales and online shopping weakening markedly. Real average hourly earnings fell 0.2% year-over-year, squeezing purchasing power and further dampening consumer willingness to spend.
High oil prices fuel inflation concerns, consumer outlook turns pessimistic
Joanne Hsu, director of the University of Michigan's survey, noted that the early August decline in consumer confidence was widespread, but the drop was particularly sharp among older adults, lower-income households, and those without a college degree. These groups are more sensitive to the erosion of purchasing power caused by inflation and face more direct financial impact.
Looking at the sub-indices, both short-term and long-term economic outlooks fell this month after improving for two consecutive months. Consumer attention to inflation intensified further, while concerns about unemployment remained relatively stable, with labor market expectations showing no significant fluctuation since the start of the year.
On inflation expectations, consumers anticipate prices will rise by 4.3% over the next year, a slight increase of 0.1 percentage points from the previous month. In contrast, the five-to-ten-year inflation outlook remained at 3.3%, consistent with earlier readings and market expectations.
This suggests that long-term inflation expectations have not become significantly "unanchored," but the persistently high level of short-term inflation expectations warrants close monitoring. Particularly against the backdrop of declining real wages, price pressures are further compressing household purchasing power, putting the sustainability of consumer-driven growth under greater scrutiny.
The survey was conducted between July 28 and August 10. During this period, the national average gasoline price in the US remained above $4 per gallon, with rising energy costs considered a key factor driving up short-term inflation expectations.
Retail sales cool, testing the momentum of consumer spending
Retail sales data released on Friday further confirmed the weakening of consumer spending. US retail sales in July recorded their largest monthly decline in over a year, with both auto sales and online shopping dropping significantly. This indicates that consumers, facing high prices and constrained real income, are becoming more cautious in their spending.
Meanwhile, government data showed that real average hourly earnings fell 0.2% year-over-year in July, continuing the downward trend that began after the outbreak of the Middle East conflict. When wage growth lags behind price increases, household purchasing power is persistently squeezed, and the recovery of consumer confidence lacks sufficient support.
With elevated inflation expectations, declining real wages, and weakening retail sales, the resilience of US consumption, a key engine supporting economic growth, is facing a more significant test.
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