“Consumer sentiment surges while inflation outlook dips, University of Michigan survey shows,” Jeff Cox quotes Joanne Hsu, the survey’s director, saying, “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Hsu said. “Democrats and Republicans alike showed their most favorable readings since the summer of 2021. Sentiment has now risen nearly 60% above the all-time low measured in June of 2022 and is likely to provide some positive momentum for the economy.” As 2024 begins, a surprising wave of consumer confidence is spreading across the U.S. economy, even with ongoing worries about a potential slowdown. The University of Michigan’s Survey of Consumers shows a notable rise in sentiment, with January’s reading reaching 78.8—the highest since July 2021. This marks a 21.4% increase from the same time last year, continuing the positive trend seen in December. This growth reflects increasing consumer optimism about inflation and the overall economic outlook despite lingering concerns about the country’s future direction.
Joanne Hsu points out that this two-month jump in consumer sentiment is the largest since 1991. She credits this positive shift to growing confidence that inflation is under control and that income prospects are improving. This newfound economic optimism spans across political lines, with both Democrats and Republicans reporting their most positive views since mid-2021. The rise in sentiment is particularly remarkable given the deep pessimism that dominated recently, with current levels now nearly 60% higher than the record low seen in June 2022. According to Hsu, this growing confidence could provide a significant boost to the economy in the coming months.
A key factor behind this renewed optimism is the belief that inflation is easing. The survey found that consumers expect the inflation rate a year from now to be around 2.9%, down from 3.1% in December, marking the lowest expectation since December 2020. The Federal Reserve’s aggressive interest rate hikes, which have raised short-term rates to their highest level in over two decades, seem to be contributing to this perception of inflation control, even though it remains above the Fed’s target of 2%. This belief in lower inflation has been crucial in the overall boost in consumer sentiment.
Along with a positive economic outlook, the survey’s index of current conditions also saw a significant rise, reaching 83.3, a 21.6% improvement from the same time last year. Consumers have responded positively to various economic factors, such as lower gasoline prices and a strong stock market. For example, AAA reports that the price of a gallon of regular gasoline is about 30 cents lower than it was a year ago, easing a major financial burden on households. Meanwhile, the S&P 500 is nearing record highs, further boosting consumer confidence.
The survey’s results suggest that the U.S. economy might be heading for a "soft landing," where growth slows enough to control inflation without causing a recession. Andrew Hunter, deputy chief economist at Capital Economics, sees the survey as a positive sign for the economy, though he warns that increased optimism doesn’t always lead to higher consumer spending. Still, the rise in sentiment is an encouraging sign that the dire predictions of a sharp economic downturn may not come true.
Following the survey’s release, financial markets responded positively, with stock prices inching up and Treasury yields climbing. These movements reflect investors’ cautious optimism about the economic outlook and the Federal Reserve’s possible actions. There is widespread expectation of several small rate cuts, though the timing remains uncertain. Market predictions are divided on whether the Fed will start easing rates in March or wait until May, highlighting the careful balancing act the central bank faces in maintaining economic growth while keeping inflation in check.
In conclusion, the start of 2024 has brought a welcome rise in consumer confidence, driven by lower inflation expectations, better income prospects, and other positive economic conditions. While uncertainties remain, particularly regarding the Fed’s future actions, the overall sentiment suggests that consumers are more optimistic about the economy’s direction than they have been in years. This renewed confidence could have a significant impact on the economic landscape in the months ahead.
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