Consumer attitudes toward the economy reversed course as sentiment fell by nearly 8% so far for August.
The University of Michigan’s monthly preliminary consumer sentiment survey reported a sharp decline. On a month-over-month basis, consumer sentiment dropped by 7.6%, ending the nation’s two-month streak of consecutive growth.
The decline is more severe on an annual scale, as sentiment fell by 12.4% since August 2025. Consumers’ loss of faith in the economy can largely be attributed to the business side.
“While views of personal finances saw only minor declines, expected business conditions sank 11% for the short run and 17% for the long run,” Joanne Hsu—the University of Michigan’s Survey of Consumers Director—said in the report.
While real estate professionals have reported qualitatively that sentiment about the economy impacts home sales, there are other signs that housing demand has defied broader macro pessimism. A separate survey of consumer confidence by non-profit The Conference Board found home purchase plans are actually up on a six-month rolling average, roughly coinciding with the beginning of the war.
While the drop in sentiment was seen throughout the whole political spectrum, Hsu noted that Republicans exhibited “the strongest month-to-month decline in August.”
“Sentiment among Republicans is now 19% below readings just prior to the Iran conflict and the lowest since the 2024 election,” she said.
Inflation caused by the war seems to be the primary driver of concern among consumers. Specific groups—older consumers, low-income consumers and those without a college degree—were the main contributors for this month’s plunge, according to the report.
Concerns surrounding geopolitical tensions are coupled with worries on income growth. The report mentions that inflation estimates for the year ticked up slightly month-to-month
“Year-ahead inflation expectations ticked up from 4.2% in July to 4.3% this month,” Hsu added. “The current reading substantially exceeds the 3.4% seen in February before the Iran conflict.”
Consumer fears about inflation haven’t entirely showed up in the data yet, as the Bureau of Labor Statistics (BLS) Consumer Price Index (CPI) report highlighted a slight increase to inflation rates month-over-month. While the inflation rate’s rise was reduced by a slowing of energy prices, it still reflects what’s on consumers’ minds.
“Across all consumers, only 8% expect their income growth to exceed inflation in the year ahead, down from 18% in December 2024, a reflection of the belief that high prices will continue to be burdensome,” Hsu stated.
More than 60% of consumers believe that inflation’s pace will overwhelm income growth for the rest of the year, according to the report. About 20% believe the two will maintain pace with each other, leaving the majority of Americans with little hope for the future. Long-run inflation estimates remain constant according to the report, maintaining its trajectory of 3.3% for the third month in a row.
For the full report, click here.
