22 MIN(s)
People shop along the Magnificent Mile retail strip on July 30, 2025 in Chicago, Illinois.
US consumer sentiment dropped sharply in August, new data showed Friday, ending months of recent gains as prolonged inflation and uncertainty over the US war against Iran hit the economy."Consumer sentiment fell about 8 percent this August, ending two consecutive months of improvement," said University of Michigan survey director Joanne Hsu.Preliminary data showed consumer sentiment came in at 51.0 points, down from 55.2 and well off from market expectations.The United States and Israel launched the war against Iran on February 28, plunging the Middle East into conflict and sending energy prices skyrocketing as Tehran retaliated by attacking Washington's Gulf allies and snarling a fifth of the world's oil and gas supplies.The war has sent inflation -- already elevated from the US Federal Reserve's long-term two-percent target -- surging, and has hit US households battered by years of high prices hard.Expectations for inflation in the year ahead ticked up from 4.2 percent in July to 4.3 percent in August, the survey showed."The current reading substantially exceeds the 3.4 percent seen in February before the Iran conflict began, along with all 2024 readings," said Hsu.Long-run inflation expectations held steady at 3.3 percent for the third consecutive month -- still markedly higher than normal.Higher inflation expectations tend to curtail both business activity and household spending, as companies and families incorporate cost cutting into their financial planning.The vast majority of consumers -- 92 percent -- expected that their income growth would continue to lag behind inflation, the survey showed.Businesses have also been hard hit by the surging of inflation, as well as by President Donald Trump's turbulent tariff policies, which have roiled global trade."While views of personal finances saw only minor declines, expected business conditions sank 11 percent for the short run and 17 percent for the long run," said Hsu.Trump's Republican Party faces a stern test at upcoming midterm elections in November, with Democrats seeking to wrest control of both houses of Congress.August's survey showed decreases in consumer sentiment across the political divide, but Republicans showed the strongest month-to-month decline.Sentiment among Republicans is now 19 percent below levels just prior to the Iran conflict -- the lowest reading since the 2024 election that brought Trump to power.
