Consumer Confidence Surges to the Highest Level in Two Years

Consumer confidence has hit its highest level in more than two years as inflation edges lower and the stock market continues to rise, a report Tuesday showed.

The Consumer Confidence Index jumped to 114.8 in January from 108.0 in December, the highest reading for the survey since December 2021, the Conference Board reported. It follows a surge in the Michigan Consumer Sentiment Index, as consumers are beginning to notice the slowing inflation. 

The White House’s Council of Economic Advisers said the recent increases “suggest more people are feeling the ongoing economic improvements.”

Inflation Expectations Fall, Stock Expectations Remain High

The monthly survey showed that inflation expectations fell to their lowest level since March 2020 as consumers foresaw a 5.2% rise in prices over the next 12 months. Inflation has been waning since its highs of 2022, with the latest Personal Consumption Expenditures data showing inflation cooling again in December, while income and spending rose. 

“Consumer confidence surveys have gradually edged higher as consumers acknowledge the deceleration of inflationary pressures, interest rates inching lower and a stronger stock market supporting their pensions,” said  Quincy Krosby, LPL Financial chief global strategist. 

The survey also showed that consumers had a stark improvement in their assessment of current business conditions and the labor market, as the Present Situation Index jumped to 161.3 in January, a 9% jump from last month to put it at levels not seen since 2021. 

The number of consumers expecting stock prices to be higher in the year ahead also remained near three-year highs, as Wells Fargo noted that consumer confidence and the S&P 500 often move up together, with each moving higher since October.

“Strength in the stock market has long been a boon for consumer confidence, and January was no different,” said the Wells Fargo note from an economics team led by economist Tim Quinlan.

Consumer Near-Term Outlook Less Optimistic

Looking six months out, however, shows consumers were somewhat less confident, as a more modest increase of the Expectations Index was reflective of fewer survey respondents expecting more jobs and better business conditions, though fewer were also expecting those conditions to worsen. Buying plans for autos, homes and expensive appliances also declined. 

“Despite the rosy assessment of present conditions, ask consumers about conditions in six months time, and they’ll say ‘about the same as today’,” Wells Fargo wrote.