In this May 14, 2021, file photo, customers wait in a line before entering a store on Broadway while wearing protective masks in the retail shopping district of the SoHo neighborhood of the Manhattan borough of New York. Credit: John Minchillo / AP

U.S. consumer sentiment fell in early August to the lowest level in nearly a decade as Americans grew more concerned about the economy’s prospects, inflation and the recent surge in coronavirus cases.

The University of Michigan’s preliminary sentiment index fell by 11 points to 70.2, the lowest since December 2011, data released Friday showed. The figure fell well short of all estimates in a Bloomberg survey of economists.

The slump in confidence risks a more pronounced slowing in economic growth in coming months should consumers rein in spending. The recent deterioration in sentiment highlights how rising prices and concerns about the delta variant’s potential impact on the economy are weighing on Americans.

“Consumers have correctly reasoned that the economy’s performance will be diminished over the next several months, but the extraordinary surge in negative economic assessments also reflects an emotional response, mainly from dashed hopes that the pandemic would soon end,” Richard Curtin, director of the survey, said in the report.

The expectations gauge plummeted almost 14 points to 65.2, the lowest since October 2013. A measure of consumers’ outlook for the economy over the coming year soured, falling the most since the onset of the pandemic in March 2020.

Only 36 percent of respondents expect a decline in the jobless rate, down from 52 percent the prior month, despite record job openings. Consumers also became decidedly downbeat about their income prospects. The gauge of expected personal finances fell to a seven-year low.

The Michigan sentiment index has largely underperformed the Conference Board’s gauge of consumer sentiment in recent months. While in general the Conference Board’s measure places a greater emphasis on views of the labor market, the Michigan survey tends to reflect respondents’ views about their personal financial situations.

However, it’s yet to be seen how rising concerns about the delta variant will impact the Conference Board’s measure when it’s released at the end of the month.

“The text of the report attributes the fall mainly to an intense reaction (perhaps an overreaction) to the Delta wave, and especially an exasperation that perhaps the pandemic will drag on for years,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. “If that is what’s going on, the pessimism should pass as the current wave fades over the next few months.”

U.S. equities resumed their grind higher to record levels after briefly pausing following the report. The yield on 10-year Treasury notes and the dollar fell.

An index of current conditions dropped to 77.9, the lowest since April of last year, according to the survey conducted July 28 to August 11.

Inflation worries

Consumers expect inflation to rise 3 percent over the next five to 10 years, an increase from the 2.8 percent seen last month and matching the highest level since 2013. They expect prices to advance 4.6 percent over the next year, a slight pullback from the 4.7 percent in the July survey.

Rising prices are having a clear impact on Americans’ budgets, particularly among those with lower or fixed incomes. Nearly a third of those aged 65 or older complained that inflation had lowered their living standards, as did about a fourth of those with incomes in the bottom third or with a high school education or less.

The Michigan report showed buying conditions deteriorated to the lowest since April of last year.

Concerns about the variant have accelerated in recent weeks. A number of U.S. cities have reintroduced mask requirements, and events such as the upcoming New York International Auto Show have been canceled. Meanwhile, several companies including Alphabet Inc.’s Google, Amazon.com Inc. and BlackRock Inc. have all recently pushed back plans to return to the office.

Story by Jordan Yadoo.