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Consumer sentiment rose 5 percent, reversing declines from November, according to the University of Michigan survey of consumers.
Sentiment remains relatively poor, however — remaining 15 percent below a year ago — but extremely negative consumer sentiment eased this month as inflationary pressures eased, said UM economist Joanne Hsu, director of surveys.
Gains in the sentiment index were seen across multiple demographic groups, with particularly large increases for higher-income families and those with larger equity holdings, buoyed by recent gains in financial markets.
“Consumers have clearly welcomed the recent easing of inflation,” Hsu said. “While sentiment appeared to have turned from its June low, consumers refrained from judging whether the trends would continue. Their outlook for the economy may have improved, but it remains relatively weak. The sustainability of robust consumer spending depends on continued strength in incomes and labor markets in the coming quarters.”
Consumers expect a further slowdown in inflation
Consumer concerns about high prices have eased somewhat in the past month, although those concerns still remain significantly higher than they were a year and a half ago before the rise in inflation began. The share of consumers who report that their standard of living has been eroded by inflation fell slightly in December, although it remained above 40% for the seventh month in a row.
A shrinking share of consumers blame high prices for poor buying conditions for durable goods, cars and homes. Likewise, after the peak in July, fewer consumers spontaneously mentioned food prices during their interviews. About 25% of consumers reported hearing news about inflation, down from a peak of 38% in June 2022, but well above 17% since June 2021.
Overall, although consumers appreciate these recent favorable trends, their attitudes continue to be weighed down by inflation — overall personal finance assessments are essentially unchanged, Hsu said.
The economic outlook is improving, but the economy is still expected to weaken
Consumer expectations for the economy in the short and long term have improved significantly, Hsu said. Both hit their most favorable reading in eight months, largely due to easing price pressures.
Despite this recent improvement, the overall outlook for the economy remains relatively negative; 65% of consumers expect unfavorable developments in the coming year. In addition, unemployment expectations continued to deteriorate. About 45% of consumers expect unemployment to rise next year, the largest share since April 2020, when the economy shut down due to the pandemic.
Consumer Sentiment Index
The consumer sentiment index rose to 59.7 in the December 2022 survey from 56.8 in November and below 70.6 in December last year. The current index rose to 59.4 from 58.8 in November and below 74.2 in December last year. The index of expectations rose to 59.9 from 55.6 in November and below 68.3 in December last year.
About polls
Consumer surveys are a rotating panel survey based on a nationally representative sample that gives every household in the same part of the United States an equal chance of being selected. Interviews are conducted throughout the month by phone. The minimum monthly change required for 95% level significance in the sentiment index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.
Consumer research
UM Institute for Social Research
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