Consumer Sentiment Surges as Inflation Outlook Improves

January 19, 2024

Americans are rapidly becoming more optimistic about the direction of the economy and the outlook for inflation in 2024, according to the University of Michigan’s latest Survey of Consumers.

The survey jumped 13% in January from the month prior, reaching its highest level since July 2021. On an annual basis, it is up 21.4%. That followed a big jump in December and comes despite public opinion surveys showing concern about the nation’s economic prospects. The pickup in sentiment was broad-based, spanning consumers of different ages, incomes, education, and geography.

Over the past two months, sentiment has surged a cumulative 29%, the largest two-month increase since 1991, when the economy was coming out of a recession.

A prolonged period of rampant inflation and the impact of higher interest rates had weighed on consumer sentiment, and the University of Michigan’s index hit an all-time low in June 2022. Sentiment has risen nearly 60% from that point.

Despite the recent gains, the sentiment measure is still about 20% lower than before the pandemic took hold in 2020 and about 7% lower than its historical average. 

Much of the improvement was due to falling inflation expectations for the year ahead. The outlook for inflation over the next 12 months declined to 2.9%, down from 3.1% in December for the lowest reading since December 2020.

At the same time, the portion of the survey that measures consumers’ view of current economic conditions leaped higher, rising to 83.3, or 21.6% higher than a year ago.

Other gauges also show that Americans are feeling more optimistic about the economy and their finances. In December, the share of consumers who expected to be financially better off a year later reached the highest level since June 2021, according to a Federal Reserve Bank of New York survey. A separate consumer confidence measure from the Conference Board, an economic data provider, saw its biggest one-month gain since March 2021 in December.

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