The reacceleration in gas prices, and in energy prices more broadly, is weighing heavily on consumers.
The University of Michigan’s sentiment index fell to 47.8 in early September from 51.7 in August, well below expectations and its lowest level since May.
With wages failing to keep pace with inflation, the strain on household finances is growing. Consumers’ expectations for their personal finances over the next year deteriorated sharply this month.
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On top of that, year-ahead inflation expectations jumped to 4.6% from 4.0% in August, their highest since June, as there is no clear resolution in sight to the disruption in energy supply.
The sentiment data adds to the evidence that the Federal Reserve will need to act at its meeting next week to keep inflation in check.
Inside the data
The decline was driven by how consumers see the months ahead, not by how they view conditions today. The expectations index fell to 45.8 from 51.5, a drop of roughly 11%. The current conditions index slipped only modestly, to 50.9 from 51.9.
Within expectations, the year-ahead outlooks for personal finances and business conditions both weakened. The five-year business outlook was broadly stable, which suggests consumers see the current squeeze as tied to the energy shock rather than a lasting deterioration in the economy.
Overall sentiment is now 16% below its February level, before the Iran conflict began, and 13% below a year ago.
