Consumer sentiment grew an astounding 13.1% in January, following a sharp increase in December, according to data from the University of Michigan.
“Consumer sentiment soared 13% in January to reach its highest level since July 2021, showing that the sharp increase in December was no fluke. Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations. Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended,” said Joanne Hsu, director of the Surveys of Consumers.
January’s consumer sentiment reading came in at 78.8, up 9.1 points from December, and up 21.4% year-over-year.
Inflation expectations for the future, meaning the year ahead, softened to 2.9%, the lowest since December 2020, and is now within the 2.3% – 3% range seen in the two years prior to the pandemic. Long-run inflation expectations fell to 2.8%, coming in just below the 2.9% – 3.1% range seen for 26 of the last 30 months. Both of these expectations remained slightly elevated from the 2.2% – 2.6% range seen in the two years pre-pandemic.
“For the second straight month, all five index components rose, with a 27% surge in the short-run outlook for business conditions, and a 14% gain in current personal finances,” continued Hsu. “Like December, there was a broad consensus of improved sentiment across age, income, education and geography. Democrats and Republicans alike showed their most favorable readings since summer 2021. Sentiment has now risen nearly 60% above the all-time low measured in June 2022 and is likely to provide some positive momentum for the economy. Sentiment is now just 7% shy of the historical average since 1978.”
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