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US consumer sentiment dips to 11-month low in August

By Michele Maatouk

Date: Friday 17 Aug 2018

(Sharecast News) - US consumer sentiment unexpectedly fell in August, to its lowest level since last September, according to a preliminary reading from the University of Michigan.
The consumer sentiment index fell to 95.3 from 97.9 in July and 96.8 in August last year, missing expectations for a reading of 98.0. The drop was concentrated among households in the bottom third of the income distribution.

Meanwhile, the index of current economic conditions declined to 107.8 this month from 114.4 in July and 110.9 in August 2017.

The index of consumer expectations was steady from last month at 87.3 but down from 87.7 in August last

The survey found that buying conditions for large household durables sank to the lowest level in nearly four years, while vehicle buying conditions were viewed less favourably than any time in the last four years, with vehicle prices being judged less favourably than any time since the close of 1984.

Surveys of Consumers chief economist Richard Curtin said: "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 favourable 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."

Andrew Hunter, US economist at Capital Economics, said the drop in sentiment suggests at face value that the recent escalation of trade tensions may be worrying some consumers. "But the press release suggests that the bigger factor has been the recent rise in inflation," he said.

Hunter said the decline in the headline index, driven by a fall in the current conditions index, is a little hard to square with recent labour market strength and seems instead to reflect concerns about the squeeze on consumers' real incomes from the recent rise in headline inflation to a six-year high.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "We expect a rebound in September. Even after the August dip, sentiment remains very elevated by historical standards, but real consumers' spending can't sustain the 4% growth implied by the survey; peoples' cashflow just isn't strong enough. Inflation expectations rose a tenth on the 5-to-10 year measure, to 2.5%, while the 12-month measure was unchanged at 2.9%. The latter is trending slowly higher, though; it stood at 2.6% a year ago."

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