Consumer sentiment continued to rise this month as economic views diverged based on political party identification, according to the University of Michigan Surveys of Consumers.
The index of consumer sentiment increased for the fifth straight month, 3.1 percent to 74.0 from 71.8 in November, and was 6.2 percent higher than its year-earlier mark of 69.7. Driven by a sharp improvement in buying conditions, the index of current economic conditions increased 21.6 percent to 77.7 from 63.9 the previous month, and was 6 percent higher than 73.3 in December 2023. The index of consumer expectations fell 7 percent to 71.6 from 76.9 in November, but was 6.2 percent higher than its year-earlier reading of 67.4.
The expectations index increased for Republicans and declined for Democrats, said Surveys of Consumers Director Joanne Hsu. While Democrats were concerned that tariff hikes would lead inflation to rise, Hsu said Republicans disagreed with that assessment, instead expecting the incoming administration of President-elect Donald Trump to usher in a slowdown in inflation.
Year-ahead inflation expectations increased to a six-month high of 2.9 percent from 2.6 percent in November, but still within the 2.3 to 3 percent range in the two years before the pandemic. Long-term inflation expectations slipped to 3.1 percent this month from 3.2 percent in November, which was also higher than before the pandemic.
The Conference Board Consumer Confidence Index increased to 111.7 from 109.6 in October. The index based on consumers’ assessments of current business and labor market conditions increased 4.8 points to 140.9. The index based on consumers’ short-term outlooks for income, business and labor market conditions increased less than a half-point to 92.3, above the threshold of 80 that typically signals a looming recession.
“November’s increase was mainly driven by more positive consumer assessments of the present situation, particularly regarding the labor market,” said The Conference Board Chief Economist Dana Peterson. “Compared to October, consumers were also substantially more optimistic about future job availability, which reached its highest level in almost three years. Meanwhile, consumers’ expectations about future business conditions were unchanged and they were slightly less positive about future income.”