Consumers are growing slightly more cautious about the economy

Americans’ attitudes toward the US economy appear to be growing more tepid.

The University of Michigan’s closely watched consumer sentiment index measured 69.5 in August, down slightly from July. The reading is in line with estimates released earlier this month.

“Consumers perceive that the rapid improvements in the economy from the past three months have moderated, particularly with inflation, and they are tentative about the outlook ahead,” Joanne Hsu, director of the university’s Surveys of Consumers, said in a statement.

Sentiment levels essentially moved “sideways” in August, Hsu said. Consumers’ slight trepidation bucks a recent trend of sharp upswings in optimism. But the August reading still remains well above the lows hit last summer when inflation raged to decades-high levels.

“This month’s reading reflects divergent views of consumers, with some emphasizing the stark improvement over last summer’s excessively high inflation and others focusing on the lack of notable changes in economic conditions this month,” Hsu said. “With strong income expectations, consumers may be hopeful that the economy will be on an upswing again, but for the moment they are reserving judgment.”

The Conference Board’s consumer confidence index and the University of Michigan’s twice-a-month consumer sentiment index are two leading gauges of Americans’ attitudes toward the current and future strength of the economy.

Although the two indexes typically track similarly over time, the Consumer Confidence Index is more influenced by employment and labor market conditions, while the Michigan sentiment index has a greater emphasis on household finances and the impact of inflation.

Inflation expectations for the year ahead ticked down to 3.3% from 3.4% in July, showing “remarkable stability” but still trending higher than pre-pandemic expectations, which ranged in the 2.3% to 3% range.

Inflation expectations are crucial data points for the Federal Reserve. If consumers believe prices will remain high, that could factor in to increased wage demands, which could cause businesses to raise prices and put upward pressure on inflation.