Consumer sentiment increased 14 percent in December, reversing four consecutive months of declines and reaching its highest reading since July, according to the Ann Arbor-based University of Michigan Surveys of Consumers.
These trends are rooted in sharp improvements in how consumers view the trajectory of inflation, according to Joanne Hsu, a U-M economist and director of the Surveys of Consumers.
Sentiment rose across the population, with increases among consumers of all ages, incomes, education levels, political affiliations, and regions of the country, she says. Sentiment is now just shy of the midpoint between the pre-pandemic reading and the historic low reached in June 2022.
“Consumers are increasingly confident that inflation slowdown will continue, which has led them to upgrade their outlook over the economy” Hsu says. “The data showed a remarkable level of consensus across the country over the improvements this month. At the same time, many consumers provided caveats on their views, as they believe that the election next year may have important implications for the trajectory of the economy.
“While consumers see the economy more favorably than they did the last few months, the strength of their views remain tentative.”
All five index components rose this month, a relatively rare occurrence seen in less than 1/10th of readings since 1978. The short-run economic outlook rose 28 percent, and the long-run outlook surged 33 percent. Consumer views of the future path of inflation and the stock market all showed marked gains this month.
Buying conditions for vehicles and durable goods both improved as well, due to a mild decline in price concerns. Consumers concurrently mentioned hearing more favorable news about the economy. The index of economic news heard reached its most favorable reading since 2021, supported by enormous gains in favorable news heard by higher-income consumers, college-educated consumers, and Republicans.
Assessments of personal finances improved by about 5 percent this month, as concerns that high prices are eroding living standards waned modestly for the second consecutive month. Strength in incomes continued to support consumer spending; about 55 percent of consumers expect their incomes to rise at least as fast as inflation in the year ahead, up from 49 percent last month.
Despite the improvements this month, the reading is still below the share seen in the months just prior to the onset of the pandemic, as high prices overall continue to weigh down the views of many consumers. About 18 percent of consumers spontaneously mentioned high prices of gasoline and 21 percent mentioned food prices — little changed over the past several months.
The Consumer Sentiment Index rose to 69.7 in the December 2023 survey, up from 61.3 in November and above last December’s 59.8. The Current Index rose to 73.3, up from 68.3 in November and above last December’s 59.6. The Expectations Index rose to 67.4, up from 56.8 in November and above last December’s 60.0.
