Consumer sentiment fell in August by 13.4% from July, recording the least favorable economic prospects in more than a decade, according to the University of Michigan Surveys of Consumers.

The Sentiment Index has only recorded larger losses in six other monthly surveys since 1978, with the largest losses in how consumers viewed future economic prospects, said U-M economist Richard Curtin, director of the surveys. The losses were widespread across all demographic groups, regions and for all aspects of the economy.

“The August free-fall in confidence was in response to mounting issues, including rising inflation, small wage gains and slower declines in unemployment,” he said. “The falloff also reflected an emotional response to people’s dashed hopes that the pandemic would soon end and lives could get back to normal.

“This is not the first time emotion has partly determined economic behavior. Twenty years ago, the terrorist attacks on 9/11 led to an emotional retrenchment in spending. Although economic expectations improved by year-end, the emotional impact on spending patterns lasted much longer. The same type of persistent impact is now likely to reoccur.”

Negative impact of inflation spreads
One in five households in August cited the negative impact of inflation on their budgets, up from just 1 in 20 at the start of the year. Complaints that rising inflation had lowered their living standards were voiced by 30% of those aged 65 or older, by 24% of those with a high school education or less, and by 23% of households with incomes in the bottom third. Expected income gains among consumers under 45 fell to 3.6% from July’s 4.4%, and income gains expected by those with incomes in the top third fell to 2.4% from 2.8% in July.

Source: https://news.umich.edu/plunge-in-confidence-due-to-economics-emotions/