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US consumer sentiment falls in August amid recession fears

U.S. consumer sentiment declined in early August amid new China tariffs and recession fears.

The University of Michigan's index of consumer sentiment dropped to 92.1 from 98.4 in July, missing the consensus estimate of 97.5 from economists polled by Econoday.

The current economic conditions index fell to 107.4 from 110.7, reaching its lowest level since late 2016. The index of consumer expectations declined to 82.3 from 90.5.

Monetary and trade policies have raised consumer uncertainty about their future financial prospects, said Richard Curtin, the survey's chief economist.

The Federal Reserve cut its benchmark interest rate by 25 basis points in July. "The main takeaway for consumers from the first cut in interest rates in a decade was to increase apprehensions about a possible recession," Curtin said, noting that declining interest rates have been linked to the start of recessions.

"Consumers concluded, following the Fed's lead, that they may need to reduce spending in anticipation of a potential recession."

Curtin said consumers, who are also concerned about future employment and wage growth, are "likely" to reduce their pace of spending while keeping the economy out of recession at least through mid-2020.

Curtin also said the consumers "strongly reacted" to the proposed September increase in tariffs on Chinese imports.

"Although the announced delay until Christmas postpones its negative impact on consumer prices, it still raises concerns about future price increases," Curtin said.

The U.S. Census Bureau on Aug. 15 reported better-than-expected retail sales growth, which analysts believe was a sign of continued consumer confidence in the economy despite trade and recession worries.