Consumer sentiment jumps to 9-month high as inflation ebbs and stocks rebound

Consumer sentiment jumps to 9-month high as inflation ebbs and stocks rebound

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The numbers: A survey of consumer sentiment rose to 64.6 in January and hit a nine-month high, reflecting easing worries about inflation and Americans’ greater confidence in their own finances.

The index increased from a revised 59.7 in December, the University of Michigan said.

Consumer sentiment is still weak, though. The index is well off a Coronavirus-era peak of 88.3 in April 2021 and a pre-pandemic high of 101.

Key details: A gauge that measures what consumers think about their financial situation — and the current health of the economy — climbed to 68.6 last month. One year ago, the index stood at 72.

Another measure that asks about expectations for the next six months moved up to 62 from 59.9 in the prior month. It’s also just a few notches below year-ago levels.

Americans viewed inflation as less of a threat. They expected the inflation rate in the next year to average about 4%, down from 4.4% in the prior month.

In the longer run, consumers said they see inflation falling toward 3% — above the Federal Reserve’s 2% target. Top Fed officials pay close attention to inflation expectations because they could be a harbinger of future price trends.

The current 12-month rate of inflation is 6.5%, based on the consumer-price index. It’s fallen from a peak of 9.1% last summer.

Big picture: Cheaper gas, rebounding stock prices and ebbing inflation have given Americans more reason for hope.

Yet rising interest rates and the threat of recession are leaving Americans on edge. The Fed is rapidly lifting rates to tame high inflation, but its get-tough approach has also increased the odds of a recession.

Looking ahead: “While that is the highest reading in nine months,” said U.S. economist Andrew Hunter at Capital Economics, the relatively low reading suggests “consumers remain unusually downbeat.”

Market reaction: The Dow Jones Industrial Average

and S&P 500

fell slightly in Friday trades.

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