Consumer sentiment fell this month as expectations soured amid the war in Iran, according to the University of Michigan Surveys of Consumers..The index tracking consumer sentiment fell 7.6 percent this month to 51.0 from 55.2 in July, down 12.4 percent from its year-ago mark of 58.2. The index measuring economic conditions fell 5.5 percent to 51.8 from 54.8 in July, down 16 percent from 61.7 in August 2025. The index tracking consumer expectations fell nearly 9 percent to 50.6 from 55.4 in July, down 9.5 percent from 55.9 a year ago. Short-run expected business conditions fell 11 percent, according to the Aug. 14 report, while longer-term expectations dropped 17 percent. Republican sentiment is nearly 20 percent lower than before the Iran war and its lowest since the 2024 election.Only 8 percent of consumers said their income growth would exceed inflation in the coming year, down from 18 percent in December 2024. “Decreases in sentiment were seen across the political spectrum, with Republicans exhibiting the strongest-month-to-month decline in August,” said Director Joanne Hsu. Hsu said especially strong drops were seen among older consumers, those with lower incomes or without a college degree. “These groups are all particularly vulnerable to any erosion of purchasing power stemming from inflation,” she added. Year-ahead inflation expectations increased to 4.3 percent from 4.2 percent in July, higher than the 3.4 percent in February before the war in Iran started. Long-term inflation expectations were steady at 3.3 percent for the third straight month, higher than its range of 2.8 percent to 3.2 percent in 2024. The Conference Board Consumer Index also reflected a drop in sentiment, falling 1.4 points to 90.8 in July. The index tracking consumer assessments of current business and labor market conditions dropped for the third straight month, falling 3.6 points to 114.9. The index based on short-term outlooks for income, business and labor market conditions was unchanged at 74.7. “Looking ahead, consumers anticipate little improvement in business conditions over the next six months, but expectations for the labor market were slightly less negative,” said Chief Economist Dana M. Peterson. “Expectations for household incomes moderated but remained optimistic overall.”
