Consumer sentiment reaches 2 1/2 year high

Consumer sentiment increased 13 percent last month to 79, its highest level since July 2021. Consumers expressed improved outlooks on inflation and personal incomes, according to the University of Michigan Surveys of Consumers

Consumer sentiment climbed 29 percent over the last two months, the largest two-month increase since 1991. Higher sentiment was reported across income, education, age and geography for the second straight month. Sentiment has now increased nearly 60 percent above the record low in June 2022 but is still 7 percent lower than the average historical reading, which goes back to 1978. 

The index for current economic conditions increased to 81.9, up from 73.3 in December. The expectations index increased to 77.1 in January from 67.4 the previous month, even as expectations remained mixed. Forty-one percent of consumers expect business conditions will be solid in the year-ahead, while 48 percent expect bad conditions. In June 2022, 79 percent of consumers expected challenging times for the economy.  

Fewer than one-third of consumers expect unemployment rates will increase in the year ahead, lower than the 41 percent who said the same a year ago. Stock market expectations are reportedly at their strongest in more than two years. Also, a greater share of consumers anticipate their own financial situations will improve in 2024 More than half expect their incomes to rise at least as rapidly as inflation, the highest share since July 2021. 

“For much of 2023, consumers had reserved judgment about the inflation slowdown and whether it would persist,” said University of Michigan economist Joanne Hsu, director of the Surveys of Consumers. “Over the last two months, consumers have finally felt assured that their worst fears for the economy would not come to pass.

“This is not to say, however, that consumers as a whole are feeling sanguine about the economy; nearly half still expect challenging times for the economy in the year ahead. Uncertainty stemming from the conflict in the Middle East and the looming election may also factor into consumer views in the months ahead.” 

Economic confidence was also reflected in January’s The Conference Board Consumer Confidence Index, which increased to 114.8 from 108 in December. The index tracking consumers’ views on current business and labor market conditions increased to 161.5 from 147.2. The index based on consumers’ short-term outlooks for income, business and labor market conditions increased to 83.8 in January from 81.9 in December.