The preliminary University of Michigan Consumer Sentiment Index for August slipped 2.7% to a reading of 95.3, after posting a reading of 97.9 in July. The preliminary reading is 1.5% lower than the 96.8 index reading in August of 2017.

The August index and subindex readings came in either flat or down, both for the month and when compared to August of last year. The preliminary August reading represents an 11-month low. The threat of inflation gets the blame because many Americans do not see their spending power rising, either through wage increases or tax cuts.

The dip over the past four months has left the index reading below its 2017 average of 97.7 and its 97.4 average since the Trump administration took office in January of 2017. Economists polled by Bloomberg were expecting a preliminary August reading of 97.9.

The consumer expectations subindex remained flat month-over-month at 87.3, and the current conditions subindex slipped from 114.4 to 107.8. (down 5.8%).

Year over year, the current conditions subindex is down 2.8% and the consumer expectations subindex is down 0.5%.

The survey’s chief economist, Richard Curtin, said:

Consumer sentiment slipped to its lowest level since last September, with the decline concentrated among households in the bottom third of the income distribution. The dominating weakness reflected much less favorable assessments of buying conditions, mainly due to less favorable perceptions of market prices. Buying conditions for large household durables sank to the lowest level in nearly four years. When asked to explain their views, consumers voiced the least favorable views on pricing for household durables in nearly ten years, since October 2008. Vehicle buying conditions were viewed less favorably in August than any time in the last four years, with vehicle prices being judged less favorably than any time since the close of 1984. Home buying conditions were viewed less favorably in early August than any time in the past ten years, with home prices judged less favorably than any time since 2006. These are extraordinary shifts in price perceptions given that consumers anticipate an inflation rate in the year ahead of 2.9% in early August, unchanged from last month. The data suggest that consumers have become much more sensitive to even relatively low inflation rates than in past decades. As is usual at this stage in the business cycle, some price resistance has been neutralized by rising wages, although the falloff in favorable price perceptions has been much larger than ever before recorded. Overall, the data indicate that consumers have little tolerance for overshooting inflation targets, and to the benefit of the Fed, interest rates now play a more decisive role in purchase decisions.

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