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Dive Brief: - Consumer sentiment fell this month to a four-month low and views of personal finances slumped about 10% amid mounting worries about persistent inflation, the University of Michigan said Friday. - Concerns about high fuel prices and renewed U.S. trade disputes eroded household assessments of short-term business conditions, the university said, citing survey results. Expectations for inflation over the short and long term rose. - “Overall, interviews reveal broad agreement across the political spectrum that the outlook for the economy has weakened since the beginning of the year,” Joanne Hsu, director of consumer surveys at the university, said in a statement. Since January sentiments among Republicans and Democrats have sagged 20% and 13%, respectively, she said. Dive Insight: Despite their dimming sentiments, consumers have shown no sign of cutting spending. Retail sales on a full range of goods jumped a higher-than-forecast 1.2% in August on a month-over-month basis after shrinking 0.5% in July, according to the Census Bureau. From June through August, sales increased 6% compared with the same period last year. In the segments tracked by Retail Dive, sales were up almost 7% year over year in August, including large boosts from e-commerce, electronics and sporting goods. “Consumer sentiment is low,” Anna Paulson, president of the Federal Reserve Bank of Philadelphia, said in a speech, adding “but the spending data tell a different story.” “After a slow start to the year, real consumption growth accelerated to an annualized rate of 3.4% in the second quarter,” Paulson said Thursday. Price pressures may have prompted consumers to spend now rather than see their buying power wane further in coming months, Hsu said. “Buying conditions for durables improved a bit, in part due to a perception that completing such purchases now would help consumers avoid higher prices in the future,” she said. By the same logic, worsening inflation expectations may continue to spur consumer spending. Expectations for inflation in a year rose this month to 4.6% from 4% in August, Hsu said. “The current reading substantially exceeds the 3.4% seen in February before the Iran conflict began, along with all 2024 readings,” she said. Long-run inflation expectations among consumers rose to 3.4% from 3.3% in August, exceeding the range of 2.8% to 3.2% during 2024, according to Hsu. Flagging persistent price pressures, Fed policymakers on Sept. 16 increased the federal funds rate to a range between 3.75% and 4% in their first tightening in three years. “The inflation outlook continues to be highly uncertain, with risks tilted to the upside,” Cleveland Fed President Beth Hammack said Thursday, noting a series of “supply shocks” from tariffs and oil prices. “The longer that high inflation persists, the more challenging and costly it can be to bring it back down,” she said in a speech, noting that inflation has exceeded the Fed’s 2% target for more than five years. Paulson voiced zero tolerance for above-target inflation. “Let me be clear: returning inflation to 2% is nonnegotiable, and I will support the policy path that gets us there while carefully weighing risks to the labor market along the way,” she said.
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