heightened discomfort to be felt by consumers, according to Jefferies analysts
In August 2025, U.S. consumer sentiment took a significant hit, with the University of Michigan's Consumer Sentiment Index falling to 58.6 from 61.7 in July. This decline was the first monthly drop in four months, primarily driven by growing inflation concerns and worsening buying conditions for durable goods.
The current economic climate has seen several key trends emerging. Inflation expectations, for instance, surged to 4.9% from 4.5%, with the five-year inflation outlook rising to 3.9% from 3.4%. This return of inflation anxiety has weighed heavily on consumer mood.
The current conditions index deteriorated sharply, indicating consumers perceive the present economic environment as weaker. Meanwhile, the expectations gauge dropped, reflecting heightened pessimism about future economic prospects, especially around inflation and unemployment.
Buying conditions for durable goods worsened markedly, suggesting consumers are more reluctant to make significant purchases in this category due to inflation and economic uncertainty. This trend is particularly notable among younger consumers, who are responding to economic pressures by saving more and cutting discretionary spending.
Despite these challenges, there have been some positive developments. Spending in July appeared robust, seemingly funded by June, and there was a significant rebound in consumer sentiment from July to early August, according to Jefferies Equity Research analysts. The most educated consumers continue to see sentiment surge and are nearly the most upbeat cohort tracked by Jefferies.
The back-to-school season in August has become increasingly important, with analysts noting a shift towards staples as necessary items are being purchased due to pricing, while growth in discretionary spending remains constrained. August discretionary purchases have increased, but the strongest months of 2025 to date have been January and April, with the latter attributed to tariff-related panic.
It's important to note that natural gas prices are comparatively high year-over-year and may be causing significant financial strain in 2025. Additionally, recent political developments, such as new tariffs imposed on many countries, may also contribute to these sentiment declines by increasing inflation pressures and consumer worries.
In the face of these challenges, consumers are adopting a more cautious approach to spending, particularly in durable goods and discretionary categories. This sentiment deterioration comes despite slight improvements in expectations for personal finances, indicating consumers feel more vulnerable to broader economic headwinds.
References:
- University of Michigan, Surveys of Consumers, 2025.
- Jefferies Equity Research, U.S. Consumer Sentiment Analysis, 2025.
- Federal Reserve Bank of St. Louis, Consumer Price Index, 2025.
- Office of the U.S. Trade Representative, Tariff Fact Sheets, 2025.
- Bank Survey, Consumer Spending Trends, 2025.
- The current economic conditions have caused consumers to become more cautious in their spending, especially in business sectors like durable goods and discretionary categories, due to inflation concerns and economic uncertainty.
- Amidst the heightened anxiety over inflation, personal finance has become a significant concern for consumers, and this caution has led to increased saving and reduced discretionary spending, particularly among younger consumers.
