University of Michigan Index of Consumer Sentiment Posts Sharp Declines in Preliminary August Results

The University of Michigan today (Friday 8-13-21), released its preliminary Consumer Sentiment Index (CSI) for August. The Index of Consumer Sentiment dropped to a reading of 70.2 in August, down from 81.2 in July, a month-over-month decline of -13.5% and -5.3% year-over-year (74.1 in August 2020). The Current Economic Conditions dropped to a reading of 77.9 in August, down from 84.5 in July, a month-over-month decline of -7.8% and -6.0% year-over-year (82.9 in August 2020). Finally, the Index of Consumer Expectations dropped to a reading of 65.2 in August, down from 79.2 in July, a month-over-month decline of -17.5 and -4.8 year-over-year (68.5 in August 2020). . In remarks prepared for the preliminary release of the August CSI, Richard Curtain. Director of Surveys for the UofM said, Consumers reported a stunning loss of confidence in the first half of August. The Consumer Sentiment Index fell by 13.5% from July to a level that was just below the April 2020 low of 71.8. Over the past half century, the Sentiment Index has only recorded larger losses in six other surveys, all connected to sudden negative changes in the economy: the only larger declines in the Sentiment Index occurred during the economy’s shutdown in April 2020 (-19.4%) and at the depths of the Great Recession in October 2008 (-18.1%). The losses in early August were widespread across income, age, and education subgroups and observed across all regions. Moreover, the loses covered all aspects of the economy, from personal finances to prospects for the economy, including inflation and unemployment. There is little doubt that the pandemic’s resurgence due to the Delta variant has been met with a mixture of reason and emotion. Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end. In the months ahead, it is likely that consumers will again voice more reasonable expectations, and with control of the Delta variant, shift toward outright optimism. Consumers’ reaction to Delta’s modestly higher precautionary measures indicates the difficulty of producing optimal policy responses.