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Consumers grow wary as sentiment falls amid trade concerns

Consumer sentiment declined in early August to its lowest level since the start of the year.

The University of Michigan’s preliminary consumer sentiment survey fell 6.4% to 92.1 in August — the lowest level since January. Economists had predicted it would come in at 97.2

The August losses spanned all index components. Although the Expectations Index recorded more than twice the decline in August as the Current Conditions Index (-8.2 versus -3.3), the Current Conditions Index fell to its lowest level since late 2016.

“Monetary and trade policies have heightened consumer uncertainty—but not pessimism—about their future financial prospects,” said Richard Curtin, chief economist, surveys of consumers, University of Michigan. “Consumers strongly reacted to the proposed September increase in tariffs on Chinese imports, spontaneously cited by 33% of all consumers in early August, barely below the recent peak of 37%.”

Curtin said that while delaying the tariff on some imports until December postpones its negative impact on consumer prices, it still raises concerns about future price increases. He also noted that the main takeaway for consumers from about the Federal Reserve’s first cut in interest rates in a decade was to increase their apprehensions about a possible recession.

“Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession,” Curtin said. “Falling interest rates have long been associated with the start of recessions.”

According to Curtin, perhaps the most important remaining pillar of strength for consumer spending is favorable job and income prospects. However, he said that the August survey indicated some concerns about the future pace of income and job gains.

“It is likely that consumers will reduce their pace of spending while keeping the economy out of recession at least through mid-2020,” Curtin said.
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