Topline

Views on the U.S. economy fell unexpectedly in August, ending two months of improvement after the war in Iran lowered economic optimism to a record low, according to a widely tracked University of Michigan survey, as sentiment among Republicans fell to its lowest level in nearly two years.

Key Facts

The University of Michigan’s consumer sentiment reading—a monthly survey of Americans’ views on the economy—fell to 51 in August from 55.2 in July, dropping well below consensus analyst estimates of 54.5, according to FactSet.

Republicans had the largest month-over-month decline of any political group surveyed by the University of Michigan in August, falling 19% below its level just before the Iran conflict, its lowest point since the 2024 election.

Any value below the consumer sentiment survey’s historical benchmark of 100 corresponds with growing pessimism among Americans, and any reading above—last recorded in 2028—indicates broader optimism.

tangent

The Commerce Department reported Friday that retail sales dropped 0.6% in July from the prior month, the steepest drop since May 2025 and the first month-to-month decline in nine months. Economists anticipated monthly growth of 0.1%, a slight slide from 0.25% growth in July, according to FactSet. Navy Federal Credit Union chief economist Heather Long wrote in a note Friday: “American consumers are showing signs of fatigue,” adding that despite spending less on gas in July, “consumers weren’t eager to spend elsewhere.”

key background

A conflict in the Middle East sparked higher oil and energy prices, resulting in surging consumer prices in the U.S. that appeared to persuade Americans to buy fewer goods. Inflation cooled slightly in July, according to Bureau of Labor Statistics data, as markets sought figures that would ease odds of the Federal Reserve hiking interest rates anytime soon. Fed Chair Kevin Warsh has pointed to inflation and rising consumer costs as targets for the central bank to stabilize, saying the Federal Reserve has a “resolute commitment to restoring price stability.”