Consumer Sentiment Soft Compared to July

Pressures for inflation expectations are the hidden headlines in today's consumer sentiment report where the index ends August at 96.2, just above Econoday's top estimate but still soft compared to July's 97.9. Note that acceleration from the mid-month reading of 95.3 roughly hints at a low 97 pace over the last two weeks.

The downpull is coming from the current condition component which fell 4.1 points in the month to 110.3 for the lowest reading since November 2016. This will not raise expectations for acceleration in August consumer spending. The component for expectations is 2 tenths lower this month to 87.1.

Inflation expectations are on the rise with the year-ahead outlook up 1 tenth to 3.0 percent and the 5-year outlook up 2 tenths to 2.6 percent. The gains, however, follow downticks in July and return these readings to their June levels. Still these readings are at 4-year highs and are certain to attract the attention of Jerome Powell who focused on the need to keep inflation expectations stable in his Jackson Hole comments last week .

This report is telling a different story than Tuesday's consumer confidence data that showed sharp acceleration in part on optimism over jobs and income. Yet the consumer sentiment report is also showing such optimism which the text of the report is warning typically precedes a downturn for the economy. Regarding the rise in inflation expectations, the report attributes it less to tariff concerns and more to expectations for robust economic growth.