Consumer Sentiment Improves 13% to Reach Highest Level Since July 2021

Consumer sentiment has reached its highest level since July 2021, with consumers expecting improvements in both inflation and personal incomes.

The index reached this level with a 13% month-over-month improvement in January, which was preceded by a 14% improvement in December, according to the University of Michigan’s Surveys of Consumers released Friday (Feb. 2).

“Consumers expressed gains in their views on their personal finances as well as the macroeconomy; the short-run business outlook soared 27%,” Surveys of Consumers Director Joanne Hsu said in announcing the findings. “After reserving judgment last fall about whether the slowdown in inflation would persist, consumers now feel assured that inflation will continue to soften.”

Consumer sentiment has been recovering from an all-time low reached in June 2022, according to the report. That recovery stalled in the late summer and fall of 2023 but has now resumed its upward momentum.

The improvements in consumer sentiment seen in January and December are among the five highest recorded in the survey since 1978.

The January reading remains 7% below the historical average seen since 1978, the report said.

Consumers expressed “considerable disagreement about the future of the economy,” Hsu said. Forty-one percent have a positive outlook for business conditions in the year ahead, while 48% are negative.

However, that is an improvement over June 2022, when 79% of consumers had a negative outlook, according to the report.

The survey gauged consumers’ year-ahead inflation expectations at 2.9% in January, down from 3.1% in December and 4.5% in November. The current reading is the lowest since December 2020, the report said.

Long-run inflation expectations remained at 2.9%, the same as December. That is at the low end of the range of 2.9% to 3.1% seen in 27 of the last 30 months, per the report.

It was reported Jan. 25 that the economy kept growing in the fourth quarter, outpacing expectations. The Bureau of Economic Analysis reported that gross domestic product (GDP) rose at a seasonally adjusted, annualized pace of 3.3% during the quarter, lower than the 4.9% growth rate seen in the third quarter but higher than the 1.5% expected by economists.