Sentiment Improves as Inflation Loosens Grip on Consumers in August

Consumers again said they expect price increases to ease in the near future, helping push August’s sentiment survey higher after four months of decline.

Consumer sentiment improved to a final reading of 67.9 in August, more than a point higher than the prior month, data from the University of Michigan showed. Economists surveyed by the Wall Street Journal and Dow Jones Newswires expected the reading to be slightly higher.

Survey director Joanne Hsu said the survey showed a broad improvement in consumers' attitudes about the economy. After hitting an all-time low in the June 2022 survey, consumer sentiment has rebounded by about 36%. 

“Consumers’ short- and long-run economic outlook improved, with both figures reaching their most favorable levels since April 2024 and a particularly sizable 10% improvement for long-run expectations that was seen across age and income groups,” Hsu said. 

Inflation Expectations Improve for Third Month

Consumers expect inflation in the next year will be 2.8%, their outlook moving lower for a third consecutive month. That optimism comes as the Personal Consumption Expenditures (PCE) report on Friday showed price pressures continued to ease in July.

Economists often say the University of Michigan survey is more sensitive to inflation. In contrast, a similar consumer confidence survey from the Conference Board touches more on changes in the labor market. 

Federal Reserve officials follow consumer inflation expectations to monitor pricing trends, as price setters' and wage payers' reactions to these expectations can often be self-fulfilling. Declining inflation expectations could support forecasts that the Fed is prepared to begin cutting interest rates, which may start at the upcoming September meeting.