U of M survey shows double-digit increases in consumer sentiment for the second straight month
For the second consecutive month, there has been a sharp rise in consumer sentiment in the U.S., a rate not seen in more than 30 years.
According to the University of Michigan Surveys of Consumers released on Friday, consumer sentiment saw a 13% jump in January, reaching its highest level since July 2021. Combined with a 14% hike in December, it’s the largest two-month increase since 1991 when the Gulf War ended and the U.S. came out of a recession.
An improving outlook over inflation and personal incomes were credited with the increase in consumer confidence, which has seen a nearly 60% rise above the all-time low measured in June 2022 and is now 7% shy of the historical average reading since 1978.
“For much of 2023, consumers had reserved judgment about the inflation slowdown and whether it would persist,” said U of M 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.”
Despite that, Hsu said there are still vulnerabilities that could reverse that trend.
“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,” said Hsu. “Uncertainty stemming from the conflict in the Middle East and the looming election may also factor into consumer views in the months ahead.”
But for now, Hsu said the results of the Surveys of Consumers show a broad consensus of higher sentiment across age, income, education and geography with stock market expectations at their strongest in over two years.
Less than one-third of consumers expect unemployment rates to rise in the year ahead, compared with 41% a year ago, while also expressing more confidence in their own personal prospects.
In addition to a rising share of consumers expecting improvements in their own financial situations in the next year, over half of consumers expect their incomes to grow at least as fast as inflation, the highest share since July 2021.
However, Hsu noted that consumers also expressed considerable disagreement about the future of the economy.
“About 41% of consumers expect good times in the year ahead for business conditions, while 48% expect bad times,” she said, adding that it still represents a major improvement from June 2022, when a “whopping” 79% of consumers expected challenging times ahead for the economy.