US consumer-sentiment index falls the lowest since 2016

The University of Michigan’s consumer-sentiment index posted its largest monthly decline since December 2012 on Friday, coming in well under a preliminary reading from earlier in the month.

The gauge of Americans’ expectations for the economy fell to 89.8 in August, its lowest point since October 2016. The index hit 98.4 in July, and a preliminary August measurement released two weeks ago was 92.1.

The 8.7% drop followed an escalation of the US-China trade war and a key recession indicator signalling an economic downturn. The reading “is due to negative references to tariffs,” said Richard Curtin, the chief economist for the Survey of Consumers.

“While the overall level of sentiment is still consistent with modest gains in consumption, the data nonetheless increased the likelihood that consumers could be pushed off the ‘tariff cliff’ in the months ahead,” Curtin said in a statement.

President Donald Trump announced on August 1 that the US would impose tariffs on an additional $300 billion worth of Chinese imports. The tariffs were first set to hit in September, but Trump delayed some until December 15 to avoid higher prices in the holiday season.

Trump said on Thursday the US and China would continue trade talks before the next tranche of tariffs hits. Still, the index’s results aren’t likely to be easily improved by positive trade-war news, Curtin said.

“Trump’s tariff policies have been subject to repeated reversals amid threats of higher future tariffs,” he said, adding, “Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed.”