For the first time this summer, American consumers’ economic optimism has dwindled, according to the University of Michigan’s consumer sentiment report. The index dropped to 71.2 in August, a slight decrease from July’s 71.6. Despite the dip, the sentiment remains significantly higher than the record lows of last year. The decrease in optimism may be attributed to the recent rise in gas prices and inflation, which could potentially impact future sentiment. The Consumer Price Index increased by 3.2% in July compared to a year prior, indicating a higher rate of inflation than the 3% rise in June.
However, there are predictions for a decrease in inflation in the coming months, which could boost consumer sentiment. The Federal Reserve Bank of San Francisco’s recent research suggests that shelter inflation could drop to 0% in 2024 and even turn negative in the second half of the year. Nevertheless, the resumption of student loan payments could place a strain on household budgets, negatively impacting personal financial perceptions.
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Despite the declining sentiment, consumer spending has seen a rise. After a steady decrease since January, spending increased by 0.5% in June, according to the Commerce Department. The Federal Reserve will discuss potential interest rate hikes at their meeting next month, which could add further pressure on prices if economic growth continues to surge. The Fed’s objective is to reduce inflation to its 2% target.
The Atlanta Fed estimates the gross domestic product (GDP) to post an annualized rate of 4.1% in the third quarter, a significant increase from the second quarter’s 2.4%. The first estimate for third-quarter GDP will be released on October 26, just before the Fed’s October meeting.
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