Sentiment remained essentially unchanged since January 2024, solidifying the large gains from December and January, according to the University of Michigan Surveys of Consumers.

Consumers exhibited confidence that inflation will continue to soften, said U-M economist Joanne Hsu, director of the Surveys of Consumers. Assessments and expectations of personal finances improved modestly from last month, as the perceived negative effects of high prices and expenses on living standards eased.

Year-ahead expectations for business conditions reached its highest reading since July 2021. Sentiment is currently about 30% above November 2023 and about 6% below its historical average since monthly data collection began in 1978.

“Over the first three months of 2024, consumers have consistently expressed that the economy appears to be holding its course,” Hsu said. “However, with the general election looming on the horizon, many mentioned that their views remain tentative and subject to change.

“While this general sense of uncertainty does not seem to be depressing attitudes toward the economy, sentiment remains stubbornly shy of the historical average, even as consumers recognize the marked improvements in the economy since the peak of high inflation in mid-2022.”

Consumers expect slowdown in inflation to continue, but pain of high prices remains for some

Consumers consistently expressed expectations that inflation would continue to ease. At the same time, a sizable minority of consumers continued to voice concerns over the impact of high prices, Hsu said. About 20% of consumers spontaneously mentioned food prices during interviews, up from 17% last month.

Sentiment for these consumers was a considerable 22 index points below the sentiment of those who did not mention food prices, she said. Furthermore, approximately 33% of consumers blamed high prices for eroding their living standards, little changed since the beginning of the year, though substantially below the 47% seen last October.

Election presents substantial uncertainty for future

Joe Biden and Donald Trump became presumptive nominees for their parties this month, kicking off what will be an unusually long general election campaign, Hsu said. In March, about 20% of consumers spontaneously mentioned elections, somewhat higher than the 16% who mentioned elections in March 2020 and 18% in March 2016.

“These spontaneous mentions were typically in the context of economic prospects being contingent on election outcomes and came from Democrats, Independents and Republicans alike,” she said. “This month, consumers across the political spectrum anticipated that the election results would turn out to be favorable for the economy. As the presidential matchup develops in the months ahead, consumers’ views about the potential consequences for the economy will evolve.”

Consumer Sentiment Index

The Consumer Sentiment Index rose to 79.4 in the March 2024 survey, up from 76.9 in February and above last March’s 62.0. The Current Index rose to 82.5, up from 79.4 in February and above last March’s 66.3. The Expectations Index rose to 77.4, up from 75.2 in February and above last March’s 59.2.

Consumer sentiment recorded an incremental increase of less than three index points from February, well within the margin of error and stable since January. Critically, consumers exhibited confidence that inflation will continue to soften. Assessments and expectations of personal finances improved modestly from last month, as the perceived negative effects of high prices and expenses on living standards eased. Strong stock market performance this month supported sentiment gains only for those with the largest holdings, with little impact on the index. Overall, sentiment is essentially unchanged throughout the first quarter of 2024, remaining just shy of the midpoint between the pre-pandemic level of sentiment and the historic trough from June 2022. This stability reflects a perception among consumers that the economy has been holding steady in its current state. As the election season progresses and debates over economic policy become more salient for consumers, their outlook for the economy could become more volatile in the months ahead.

Year-ahead inflation inched down from 3.0% last month to 2.9% this month. For the third straight month, short-run inflation expectations have fallen within the 2.3-3.0% range seen in 2018 and 2019. Long-run inflation expectations also inched down, from 2.9% to 2.8%, and remain modestly elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.