Consumer sentiment rose 13 percent this month as inflation fell in recent weeks, according to December’s University of Michigan Surveys of Consumers.
All five index components increased this month, led by more than 24 percent jumps for both the short- and long-term business conditions outlooks on an annualized basis. The index tracking consumer sentiment increased 13.2 percent from November to 69.4, which is 16.1 percent higher than its year-ago mark of 59.8. The index of consumer expectations increased 16.9 percent from November to 66.4, which is 10.7 percent higher than 60 last December.
According to the report, the increase erased the declines from the previous four months. Sentiment is 39 percent above its record low in June of 2022 when inflation was 9.1 percent but is still well under pre-pandemic figures.
Year-ahead inflation expectations fell to 3.1 percent this month from 4.5 percent in December. The current reading is the lowest since March 2021 and is slightly higher than the 2.3 percent to 3 percent range in the two years before the pandemic. Long-term inflation expectations fell to 2.8 percent from 3.2 percent, which remained higher than the 2.2 to 2.6 percent range in the two years before the pandemic.
“There was a broad consensus of improved sentiment across age, income, education, geography and political identification,” said Surveys of Consumers Director Joanne Hsu. “A growing share of consumers — about 14 percent — spontaneously mentioned the potential impact of next year’s elections. Sentiment for these consumers appears to incorporate expectations that the elections will likely yield results favorable to the economy.”
November’s Conference Board Consumer Confidence Index increased to 102 from 99.1 in October. The index tracking consumers’ views on current business and labor market conditions fell to 138.2 from 138.6. The index based on consumers’ short-term outlook for income, business and labor market conditions increased to 77.8 from 72.7 in October.
The Conference Board Chief Economist Dana Peterson said the short-term outlook has historically indicated that a recession is likely within the next year. Approximately two-thirds of consumers said that a recession is “somewhat” or “very likely” to occur over the next 12 months, which he said tracks with the “short and shallow recession we anticipate in the first half of 2024.”
“General improvements were seen across the spectrum of income groups surveyed in November,” Peterson noted. “Nonetheless, write-in responses revealed consumers remain preoccupied with rising prices in general, followed by war/conflicts and higher interest rates.”