By Safiyah Riddle

(Reuters) -U.S. consumer sentiment fell modestly in August, as short and long term inflation expectations worsened, a survey showed on Friday.

The University of Michigan's final August reading on the overall index of consumer sentiment came in at 69.5 on Friday compared to 71.6 in July, and 1.7 percentage points lower than a preliminary reading earlier in the month. Economists polled by Reuters had forecast sentiment would remain relatively stable at 71.2.

August had the second highest reading since December 2021, and was far closer to the historic average of 86 than the all-time low registered in June 2022. The relatively positive outlook was buoyed by robust consumer spending and a resilient labor market.

But these recent positive trends in outlook might not last: Americans expressed concerns that recent rapid improvements in inflation could be moderating, and the overall consumer expectation index declined by 2.8 percentage points between July and August, the biggest drop since May.

"While buying conditions for durables and expectations over living conditions both improved, the long-run economic outlook fell back about 12% this month but remains higher than just two months ago," Joanne Hsu, the director of the University of Michigan's Surveys of Consumers, said in a statement.

The survey's reading of one-year inflation expectations rose to 3.5% this month from 3.4% in July. The five-year inflation outlook came in at 3.0% for the third straight month, worsening since preliminary readings but still within the narrow 2.9%-3.1% range for 24 of the last 25 months.

"Sentiment is likely to fall further in the months ahead... as the labor market softens, consumers dip further into excess savings, and the economy enters a period of slower growth," said Oxford Economics economist Matthew Martin.

(Reporting by Safiyah Riddle; Editing by Chizu Nomiyama)