Tariff and inflation concerns persist, U.S. consumer confidence drops to a three-month low

U.S. consumer confidence dropped sharply in August, falling to a three-month low, indicating that uncertainty related to tariffs and concerns about inflation continue to weigh on the economic outlook.

A survey released Friday by the University of Michigan showed that the final consumer confidence index for August fell to 58.2, down from 61.7 in July and also below the preliminary reading of 58.6. The data shows that consumers expect prices to rise at an annual rate of 4.8% over the next year, up from 4.5% last month; inflation expectations for the next 5 to 10 years are at 3.5%. Although this is an improvement from the preliminary reading of 3.9% released earlier this month, it is still slightly higher than July.

The report further pointed out that consumers' anxiety about employment and the business environment has intensified. About 63% of respondents expect the unemployment rate to rise in the coming year, a proportion not only higher than last month but also much higher than the same period last year. The market generally expects that the non-farm payroll report for August, to be released next week, will show that job growth remains moderate. Federal Reserve Governor Waller said on Thursday that he supports a rate cut in September and expects further easing in the next six months to help improve the employment outlook.

Consumers' willingness to purchase big-ticket durable goods and automobiles has significantly deteriorated. Joanne Hsu, director of the University of Michigan's survey project, pointed out: "An increasing number of consumers are mentioning high prices and tax/tariff factors, especially in terms of car-buying conditions, where the impact is particularly pronounced." This suggests that household financial pressures may further affect consumer spending, which is the main driver of U.S. economic growth.

However, another report released by the U.S. government on the same day showed that consumer spending in July posted the largest month-on-month increase in four months, supported by income growth. This data also reflects the impact of price pressures on consumer sentiment. Excluding food and energy, the core PCE price index rose 2.9% year-on-year in July, the highest level since February.

Sub-indices from the University of Michigan showed that the index reflecting future expectations fell to 55.9, a three-month low and below the preliminary reading of 57.2; the indicator measuring current conditions also dropped to 61.7 from last month. The survey was conducted between July 29 and August 25.