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University of Michigan Consumer Confidence decreased in August to 89.8


The Consumer Sentiment Index posted its largest monthly decline in August 2019 (-8.6 points) since December 2012 (-9.8 points), according to the University of Michigan Surveys of Consumers.

The 2012 plunge reflected widespread fears among consumers that they would be pushed off the “fiscal cliff” due to rising taxes and falling government spending, said U-M economist Richard Curtin, director of the surveys.

The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one-in-three consumers, he said. Unlike concerns about the fiscal cliff, which were promptly resolved, Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs.

Such tactics may have some merit in negotiations with China but act to increase uncertainty and diminish consumer spending at home, Curtin said. Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed.

“The August data indicate that the erosion of consumer confidence due to tariff policies is now well under way,” Curtin said. “Compared with those who did not reference tariffs, consumers who made spontaneous negative references to tariffs also voiced higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes.

“While the overall level of sentiment is still consistent with modest gains in consumption during the year ahead, the data nonetheless increased the likelihood that consumers could be pushed off the tariff cliff in the months ahead. This could result in a much slower growth in consumption and the overall economy.”

Negative Impact on Spending from Tariffs
Overall buying attitudes toward appliances, home electronics and other household durables fell to their lowest level in five years, with net price references more negative than anytime since June 2008.

Importantly, tariffs had a significant impact; among those who spontaneously mentioned tariffs negatively, 35% held unfavorable views of buying conditions for household durables, well above the 20% among those who didn’t mention tariffs. Despite lower interest rates, vehicle and home buying attitudes declined on balance in the August survey.
Strength in Personal Finances Begins to Weaken

Personal financial expectations weakened, with households who expected financial gains falling to 36%—the lowest percentage since July 2017—from last month’s 44%. Expected annual gains in household income fell to 1.8%, down from July’s 2.3% and last August’s 2.4%.

The falloff in expected income gains was widespread across socioeconomic groups, with the largest monthly decline among those under age 45, falling to 3.3% from last month’s 4.8%.

Jobs, the other pillar of strength, also displayed some cracks in August, as consumers expected slight increases rather than declines in the national unemployment rate during the year ahead.
Consumer Sentiment Index

The Consumer Sentiment Index was 89.8 in August 2019, well below July’s 98.4 and last August’s 96.2. The Expectations Index was 79.9 in August, significantly below July’s 90.5 and last year’s 87.1. The Current Conditions Index fell to 105.3 in August from 110.7 in July and 110.3 last August, and the lowest level since October of 2016.

The Consumer Sentiment Index posted its largest monthly decline in August 2019 (-8.6 points) since December 2012 (-9.8 points). The 2012 plunge reflected widespread fears of being pushed off the “fiscal cliff” due to rising taxes and falling government spending. The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one-in-three consumers. Unlike concerns about the fiscal cliff, which were promptly resolved, Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs. Such tactics may have some merit in negotiations with China, but they act to increase uncertainty and diminish consumer spending at home. Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed. The data indicate that the erosion of consumer confidence due to tariff policies is now well underway. Compared with those who did not reference tariffs, consumers who made spontaneous negative references to tariffs also voiced higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes (see the chart). While the overall level of sentiment is still consistent with modest gains in consumption, the data nonetheless increased the likelihood that consumers could be pushed off the “tariff cliff” in the months ahead.






Posted: August 30, 2019 Friday 10:00 AM




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