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Consumer sentiment is improving in August as inflation eases: UMich

Yahoo Finance Live’s Brad Smith breaks down the preliminary August consumer sentiment data from UMich.

Video transcript

BRAD SMITH: Yes indeed. All right, so the University of Michigan consumer sentiment reading coming in at 55.1 in this preliminary reading for the month of August. And as we're receiving this data and looking through it, the consumer sentiment moved up very slightly this month, about five index points, they're mentioning, above the all-time low that was reached in June.

And so as we're looking through this data, the markets somewhat reacting, but not very much, especially considering we've been fractionally higher for the trading activity thus far, 31 minutes in today's trading activity. We also want to bring in Yahoo Finance's Brian Cheung, who is helping us break this down just a little bit more on this initial reading.

BRIAN CHEUNG: Yeah, so this is a beat. Wall Street only expected 52.5, so this number being higher than that, at 55.1, shows an American consumer that maybe is a bit more optimistic than Wall Street had expected. Keep in mind, though, this is still historically a low number on the University of Michigan's read, although it is a notch up from the all-time low that we had seen on this index of 51.5 in the month of July. So a little bit of a bounceback, but still a long ways to go,

The Surveys of Consumers director, Joanne Hsu, over at the University of Michigan saying, quote, "all components of the expectations index improved this month, particularly, interestingly, among low and middle-income consumers, for whom inflation is particularly salient." Interestingly, though, they noted that higher-income people, which generate a disproportionate share of spending, actually registered some declines in how they are assessing their current personal finances, as well as buying conditions.

So overall, it seems like maybe markets can take a little bit of solace in saying, again, to be determined. But maybe July was the bottom, as could be thematic to inflation, as well. Consumer sentiment climbing back is certainly a good thing, but again, at 55.1, still relatively low.

BRIAN SOZZI: Brian, you mentioned that high-income consumer nugget. And that definitely registered with me, as well. I have not seen or heard that before. All we have heard in recent weeks is how the high-end consumer is keeping this economy afloat, especially at various retailers. I mean, what would be driving that?

BRIAN CHEUNG: Well, that's an interesting question, and we'd have to kind of look at the other qualitative data to try to put together a narrative.

But one possible explanation of this could be certainly the fact that gas prices coming down in the month of July were more impactful for the lower-income Americans who spend a larger share of their income just putting the fuel in their car to get to work, whereas other types of agnostic inflation categories and expenditures for higher-income people, which might not be as noticeable as increasing or decreasing gas prices, that story of inflation is still very much true because, as we saw from the CPI index earlier this week, inflation may have essentially plateaued between June and July, but the year-over-year prices are still 8.5% higher than they were a year ago.

So those are still lived experiences. And again, I think that we have to just kind of baseline here and make sure that, OK, yeah, we got a tick up in consumer sentiment, this arbitrary number that, you know, a survey of 500 people seems to gather, but at the same time, look, any sort of bounceback that you can see in any sort of economic data, especially which is thematic to other economic data that we've gotten for the month of July, seems to be going marginally in the right direction for the Federal Reserve.

BRAD SMITH: To your point, the survey director, Joanne Hsu, had mentioned that, with continued declines in energy prices, as well, the median expected year-ahead inflation rate fell to 5%, lowest reading since February, still well above the 4.6% reading from a year ago. And then they also end the note with saying that, still, the share of consumers that are actually blaming inflation right now for eroding their living standards, that remained near 48%. So it's very much still in the psyche of the consumer, but it's a matter of believing-- or whether it's seeing or believing, I should say, if inflation has actually plateaued, as we were discussing a moment ago.

BRIAN CHEUNG: Yeah, and you bring up the inflation aspect of this report because, you know, what we were just talking about with that 55.1 number is kind of just overall consumer sentiment. But as you mentioned, this survey does also collect data on how people feel inflation could develop over not just the next year, but over the next 5 to 10 years, as well. What we really want to focus on is the year-ahead inflation expectations. And look, Americans expect 5% inflation over the next year. That's still well above the 2%--

BRIAN SOZZI: Optimistic.

BRIAN CHEUNG: [INAUDIBLE] would like to see. That's optimistic. And that would imply a pretty sharp comedown still because, again, 8.5% is what we saw on a year-over-year basis in the month of July. But look, when you consider that Americans in July were expecting 5.1% inflation, seeing that number come down to 5% is certainly a good thing. Again, 0.1% is not that large. You would like to see an even smaller number on that.

But this is important because if consumers have lower expectations for inflation in the future, they're not going to be as panicked to try to pull forward expenditure and consumption now, which could further actually create the self-fulfilling cycle of higher inflation in the present. Those would be good things. But again, far from mission accomplished on all of this, and we'll have to see how the expectations [INAUDIBLE]

- Brian, I'm stocking up on whey protein. I don't-- I do not trust that it's going to get cheaper in the back half of the year. I suggest you do, as well.

BRIAN CHEUNG: I'm on it.

- [INAUDIBLE]

BRIAN CHEUNG: Do you do the Gold Standard?

- I'm stocking it all.

[INTERPOSING VOICES]

BRIAN CHEUNG: I like the vanilla. I like the vanilla stuff.

- I like chocolate.

[INTERPOSING VOICES]

BRAD SMITH: All right, well I'm going to try both of them, and I'll be the, I guess--

BRIAN CHEUNG: Blend them, yeah.

BRAD SMITH: I will blend them both together. Yes. Brian, thanks for helping us break this down this morning.