Consumer Sentiment Soars With Expectation of Lower Inflation

Consumer sentiment soared in December, reaching a point 13% higher than the previous month and 16% above the year-ago level.

This marked a turnaround in consumer sentiment and erased all declines recorded in the previous four months, according to the December preliminary results from the University of Michigan Surveys of Consumers released Friday (Dec. 8).

“Sentiment is now about 39% above the all-time low measured in June of 2022 but still well below pre-pandemic levels,” Surveys of Consumers Director Joanne Hsu said when announcing the results.

Hsu attributed the rise in consumer sentiment to improvements in the expected trajectory of inflation.

Consumers’ year-ahead inflation expectations dropped to 3.1% in December, down from 4.5% in November, according to the survey.

“The current reading is the lowest since March 2021 and sits just above the 2.3% to 3.0% range seen in the two years prior to the pandemic,” Hsu said.

Long-run inflation expectations fell to 2.8% in December, down from 3.2% in the previous month, the survey found.

That matches the second lowest reading seen since July 2021, though it remains higher than 2.2% to 2.6% range seen in the two years preceding the pandemic, Hsu said.

December also saw a 24% leap in both the short- and long-run outlook for business conditions, per the survey.

“There was a broad consensus of improved sentiment across age, income, education, geography and political identification,” Hsu said.

“A growing share of consumers — about 14% — spontaneously mentioned the potential impact of next year’s elections,” Hsu added. “Sentiment for these consumers appears to incorporate expectations that the elections will likely yield results favorable to the economy.”

As recently as November, consumers’ expectations on both inflation and the economy had continued to sour. At that time, overall consumer sentiment had fallen for the fourth straight month. In addition, the readings for both “current” conditions and “expectations” were at their lowest level since May.

Hsu attributed the November results to concerns about the negative effects of high interest rates.

About 60% of U.S. consumers have consistently struggled to make ends meet over the past two years, PYMNTS reported Friday. High prices have been hard on the pocketbook and consumers have worked to stretch their budget.