Key Takeaways
- Consumer sentiment improved to 74.0 in the preliminary December reading of the Michigan Consumer Sentiment Index, up from last month and better than economist projections.
- Sentiment on current economic conditions were higher, but inflation expectations also moved higher, while consumer economic expectations moved lower.
- Politics is likely playing a role in the sentiment shift, with Republicans and Independents showing optimism, while Democrats’ concerns come with higher inflation expectations.
Consumer sentiment in December improved for the fifth consecutive month to hit its highest levels since April. However, the data also showed that some people may be nervous about economic changes that could be coming next year.
The Michigan Consumer Sentiment Index increased to 74.0 in the survey’s preliminary reading for December, up from 71.8 in the prior month. Economists surveyed by Dow Jones Newswires and The Wall Street Journal expected a more modest increase to 73.0.
The increase was driven by a jump in sentiment over current economic conditions, reaching its highest levels in eight months. However, forward-looking consumer sentiment moved lower as some raised concerns about rising inflation.
“A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%,” said survey director Joanne Hsu. “Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases.”
Inflation Expectations Rise on Tariff Worries
The survey showed that consumers expect price pressure to increase. Year-ahead inflation expectations increased to 2.9% in December, up from 2.6%, while long-run inflation expectations ticked lower. Federal Reserve officials monitor consumer inflation expectations when making decisions on setting interest rates.
Economists said survey results showed that Democrats largely expected inflation to increase under the pressure of President-elect Donald Trump’s tariff proposals, while Republicans expected price pressures to ease. And it wasn’t just Republicans who were feeling better about the economy, as the survey showed a nine-point improvement in consumer sentiment among political independents.
“There is evidence consumers received a jolt to confidence from the election outcome, namely those identifying as Republican, but consumers are still on average worried about the economy, most notably inflation, and remain cautious on the future,” wrote Wells Fargo economists Shannon Seery Grein and Jeremiah Kohl.
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