UMich Confidence Plummets In August As Consumers Face "Tariff Cliff"

Following the collapse in preliminary data, August's final University of Michigan Sentiment index was expected to bounce modestly (given the exuberance in stocks), but instead tumbled further.

This was the biggest drop in six years, slumping to the lowest level of Donald Trump's presidency as Americans expressed concern about how his tariffs will affect the economy.

The University of Michigan's final sentiment index fell to 89.8 in August from a previously reported 92.1 and 98.4 in July, data showed Friday. The gauge of current conditions dropped to the lowest since October 2016, while the expectations index matched January as the weakest since that same period.

Source: Bloomberg

The 8.6-point drop from July was the largest since December 2012, while the 89.8 reading for the sentiment index was the lowest since October 2016.

“The recent decline is due to negative references to tariffs, which were spontaneously mentioned by one in three consumers,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

“ Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs. Such tactics may have some merit in negotiations with China, but they act to increase uncertainty and diminish consumer spending at home.”

The data indicate that the erosion of consumer confidence due to tariff policies is now well underway. Compared with those who did not reference tariffs, consumers who made spontaneous negative references to tariffs also voiced higher year-ahead inflation expectations, more frequently expected rising unemployment, and expected smaller annual gains in household incomes

All income levels saw sentiment decline but the richest suffered the largest drop...

Source: Bloomberg

While the overall level of sentiment is still consistent with modest gains in consumption, the data nonetheless increased the likelihood that consumers could be pushed off the “tariff cliff” in the months ahead, as buying climates tumbled for homes, vehicles, and household durables...

Source: Bloomberg

The economic outlook for the next 12 months fell to the lowest since January, while the five-year outlook also tumbled.

Finally, we note that interviews were conducted July 31 to Aug 26, before this week's melt-up mania in stocks.