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Key Takeaways
- The Michigan Consumer Sentiment Index jumped to 78.8 in January, surging 13% from the previous month and blowing by analyst estimates.
- It’s the second month of sharp improvement in the sentiment, marking the index’s best turnaround since 1991.
- Consumers feel much better about the economy, with inflation expectations falling to their lowest point since December 2020.
Consumers are feeling much better about inflation and the economy than they did just two months ago, as a leading consumer confidence survey surged higher again in January.
The University of Michigan Index of Consumer Sentiment surged to 78.8 in its preliminary January reading, jumping 13% from December and reinforcing last month’s sharp increase. After hitting an all-time low in June 2022, sentiment has risen nearly 60% and is now just 7% lower than the historical average. Analysts had forecast the index to come in flat at 69.7.
“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” said Joanne Hsu, director of the consumer survey.
The survey has not produced a 29% cumulative rise in sentiment over two months since 1991, Hsu said.
Consumer Inflation Expectations at Lowest Level Since 2020
Expectations for inflation lowered again in January, with consumers anticipating inflation at 2.9% for the year ahead. Only two months ago consumers were anticipating inflation of 4.4 %. It’s the lowest inflation expectations have been since December 2020.
Inflation has been trending downward, and the release next week of the personal consumption expenditures (PCE) price index will show whether the Federal Reserve’s preferred inflation measurement will continue to move lower after coming in at 2.6% last month.
“The powerful surge shows Americans are feeling the effects of lower inflation. That’s transmitted directly through prices at the pump, which have been falling since September, and less directly given wage increases have risen above the rate of inflation,” said Robert Frick, Navy Federal Credit Union corporate economist.
Consumers also had better feelings about the economy, with the index of current economic conditions jumping 10 points from last month to reach 83.3 and the index of consumer expectations moving higher as well.