American consumer spending roared back in August, increasing by .6% over July’s levels. This record-breaking spike made national news lately in a report out by the Commerce Department. This uptick in personal consumption expenditures coincided with the back-to-school shopping season, indicating that despite growing economic concerns, consumers continue to open their wallets.
The University of Michigan’s most recent consumer sentiment survey revealed an unprecedented plummet in consumer confidence. This month, it fell all the way down to a preliminary reading of 55.1, the seventh-lowest level ever recorded since 1952. This steep drop marks a historic change in how Americans perceive the economy. It’s no wonder that Americans are growing increasingly negative, fueled by concerns over climbing inflation.
In short, U.S. consumers who can afford to spend—the high-income consumers—have resumed spending in recent months. This move follows a difficult time marred by inflation rates reaching four-decade highs. In the summer of 2022, consumer sentiment reached its lowest recorded level. Despite this massive decline, spending quickly recovered buoyed by concerts drawing large crowds and overall increases in travel. Not adjusted for inflation, spending was up 0.4% in August.
A possible reason why worries over inflation have reasserted themselves. This change comes on the heels of President Donald Trump’s recently announced tariffs on trucks, furniture and pharmaceuticals. These tariffs would more than double the impact of rising prices, forcing consumers to experience an even greater pinch on their wallets.
“Consumers continue to express frustration over the persistence of high prices, with 44% spontaneously mentioning that high prices are eroding their personal finances, the highest reading in a year.” – Joanne Hsu
In particular, Hsu noted that in interviews fielded this month, consumers are starting to buckle under economic strain. These are primarily concerned with escalating inflationary pressures and possible softening in the labor market.
Some analysts predict that between these challenges, consumers will be optimistic enough to spend. Tom Barkin commented on the situation, stating, “Recent data show consumers resumed spending over the summer, especially those with higher incomes. Why wouldn’t they? Unemployment is still low, nominal wages are still increasing and asset valuations are near all-time highs.”
Even as the economy sits in an unclear place with rising prices and ongoing tariff effects, American consumers continue to be some of the most engaged market players. That spending paired with a decline in overall sentiment creates a puzzle as to whether or how long this trend can last.