Consumer Sentiment Drops Sharply

Not since the government shutdown early in the year has consumer sentiment been this low, at 92.1 for preliminary August in a very unexpected and sharp decline from 98.4 in July. A key reason for the drop according to the report is the US tariff hike on China that is set to take effect at the beginning of next month (though some products will be exempt until Christmas). This was spontaneously cited by 33 percent of the sample and near a prior peak on tariff issues of 37 percent. Another reason for the drop is the Federal Reserve's rate cut last month, one that the report says is raising apprehensions about a possible recession. Weakness in August's data is centered in the expectations component, down more than 8 points to 82.3 and reflecting new concerns over income prospects. The current conditions component is down more than 3 points so far this month to 107.4. Inflation expectations remain modest and steady though they did rise by 1 tenth for both the year-ahead outlook, now at 2.7 percent, and the 5-year outlook now at 2.6 percent.