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U.S. consumer sentiment rose in August

August 26, 2022 Blog 1 min read
Authors:
Jim Baird Wealth Management
Consumers expect better days ahead despite a relatively glum current assessment of the economy.

u michigan consumer sentiment

U.S. consumer sentiment ticked up to 58.2 in August’s final reading from the prior month’s index value of 51.5. Consumers are still far from anything resembling optimism in their assessment of the current state of the economy, but there’s a growing, if guarded, optimism about where it’s headed in the coming months.

Consumers’ view on present conditions continues to be the sour spot, as “recession” and “inflation” have made their way back into conversations — the latter being a meaningful, stubborn challenge for Americans for the first time in decades.

Even so, there are clear and growing signs that inflation pressures are easing, and consumers appear to be taking notice. Gas prices have receded substantially since June, providing immediate relief to most households. Broad-based measurements of consumer inflation have also rolled over.

Still, the path back to the low inflation environment that had been the norm over the past decade won’t be quick or easy. Food prices are still rising at a solid clip, lifting grocery bills. Housing costs are also likely to continue to rise for some time despite a clear downturn in the housing market as high prices and elevated mortgage interest rates took the wind out of the sails of home sales.

A rapid descent to the Fed’s 2% inflation target isn’t likely in the cards, but consumer expectations indicate a continued belief that the Fed will be successful in bringing inflation down in the coming year. Expected inflation of 4.8% over the coming year represented a considerable decline from 5.2% in July. That’s still high by most standards but still represents marked improvement. Long-run expectations remain well anchored near 3.0%.

The bottom line? Consumers are still feeling the pain of inflation and are aware of the growing risk of recession but increasingly believe that conditions should improve in the months ahead. That bodes well for consumer spending in the near term, particularly if inflation pressures continue to recede. A bit more leeway in household spending budgets would go a long way toward boosting the collective consumer mood, lifting discretionary household spending, and alleviating recession concerns.

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