(Bloomberg) -- US consumer sentiment unexpectedly declined to the lowest level in eight months in early July as high prices continued to weigh on Americans’ views of their finances and the economy.
The sentiment index fell to 66 in July from 68.2, according to the preliminary reading from the University of Michigan. The median estimate in a Bloomberg survey of economists called for a slight increase to 68.5.
Consumers’ expectations for inflation over the next year fell for a second month, to 2.9%, data Friday showed. They saw costs rising at an annual rate of 2.9% over the next 5 to 10 years, also edging down from the prior month.
“Despite expecting inflation to ease, consumers remain vociferously frustrated at the persistence of high prices,” Joanne Hsu, director of the survey, said in a statement. “Almost half of consumers spontaneously expressed complaints that high prices are eroding their living standards, matching the all-time high reached two years ago.”
The University of Michigan also released a special report on inflation expectations, a point of recent concern among economists. It found a divergence between average and median long-run expectations was driven by a small number of consumers and “unlikely to reflect a fundamental deterioration in consumers’ inflation expectations.”
Data earlier this week showed inflation cooled broadly in June, with a measure of underlying price trends posting its smallest advance since 2021. That bolstered the case for the Federal Reserve to cut interests rates in coming months.
While a separate report Friday showed a firmer-than-expected rise in wholesale inflation, details of the report pointed to underlying softness in the Fed’s preferred price gauge, the personal consumption expenditures price index. Analysts at Morgan Stanley and Capital Economics shaved their estimates for core PCE after the PPI release.
The recent downward path for inflation has provided some welcome relief to consumers who felt squeezed by the post-Covid spike in inflation. Goods prices have led the way, actually declining over most of the past year.
At the same time, the labor market, which has powered consumer spending, has showed signs of cooling, a trend that could help dampen sentiment if it continues. Unemployment rose to 4.1% in June, its highest mark since late 2021.
Election Worries
The current conditions gauge fell to 64.1 from 65.9, its lowest since December 2022. A measure of expectations also declined to 67.2, an eight-month low, from 69.6 in June.
Buying conditions for durable goods dropped to 85, the lowest in just over a year. Consumers’ perception of their financial situation now and in the future deteriorated in July, with each falling to the lowest level since October.
The report noted the November presidential election may be weighing on consumers’ expectations for the economy.
“With the upcoming election, consumers perceived substantial uncertainty in the trajectory of the economy, though there is little evidence that the first presidential debate altered their economic views,” Hsu said.
--With assistance from Chris Middleton and Matthew Boesler.
(Updates with PPI Friday data in sixth paragraph.)
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