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Consumer sentiment drops most since 2012 on trade war, tariff concerns

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

The gauge of Americans’ expectations for the economy fell to 89.3 in August, its lowest point since October 2016. The index hit 98.4 in July, and a preliminary August measurement released two weeks ago hit 92.1.

The 8.7% drop follows escalation of the US-China trade war and a key recession indicator signalling economic downturn in the near future. The reading “is due to negative references to tariffs,” according to Richard Curtin, 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.

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

Trump announced Thursday the US and China would continue trade talks before the next tranche of tariffs hit. 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. “Unlike the repeated tariff reversals, negative trends in consumer sentiment cannot be easily reversed.”

The university will release its next set of preliminary monthly results September 13.

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