August Consumer Sentiment Index Plunges on Recession Fears

By Paul Ausick Updated Jan 11, 4:49AM EST · Published Aug 16, 10:40AM EDT

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August Consumer Sentiment Index Plunges on Recession Fears — © Photo by Bill Pugliano / Getty Images

The final University of Michigan preliminary Consumer Sentiment Index for August fell month over month from 98.4 to 92.1. Economists polled by Bloomberg were expecting a preliminary August reading of 97.5, and the 92.1 score was even well below the bottom end of the expected range.

The final index reading in August of last year was 96.2, and there is little reason to expect the final reading for this month to move closer to that figure. The most recent economic news has continued to show weakness in manufacturing growth, trade and GDP growth, while U.S. equities markets bounce lower as uncertainty sends investors to safe havens like U.S. Treasuries and gold.

The survey’s chief economist, Richard Curtin, commented, “The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession.” Curtin is referring to the Federal Reserve’s July decision to reduce its federal funds rate by a quarter-point.

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Curtin continued, “Consumers concluded, following the Fed’s lead, that they may need to reduce spending in anticipation of a potential recession.” That could push the United States nearer to recession because consumer spending has been one of the high points of the economy this year, as Curtin acknowledges:

Perhaps the most important remaining pillar of strength for consumer spending is favorable job and income prospects, although 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.

The consumer expectations subindex fell by 9.1% month over month, from 90.5 to 82.3, and the current conditions subindex decreased from 110.7 to 107.4 (−3%).

Year over year, the current conditions subindex dropped by 2.6% and the consumer expectations subindex fell by 5.5%.

Commenting on the month-over-month disparity between the two subindexes, Curtin said, “Consumer sentiment declined in early August to its lowest level since the start of the year. … 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.”

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About the Author Paul Ausick →

Paul Ausick has been writing for a673b.bigscoots-temp.com for more than a decade. He has written extensively on investing in the energy, defense, and technology sectors. In a previous life, he wrote technical documentation and managed a marketing communications group in Silicon Valley.

He has a bachelor's degree in English from the University of Chicago and now lives in Montana, where he fishes for trout in the summer and stays inside during the winter.