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University of Michigan Consumer Confidence rose in December 2022 to 59.7
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Consumer sentiment rose 5%, recovering the declines from November, according to the University of Michigan Surveys of Consumers.
Sentiment remains relatively downbeat, however—remaining 15% below a year ago—but consumers’ extremely negative attitudes have softened this month over easing pressures from inflation, said U-M economist Joanne Hsu, director of the surveys.
Gains in the sentiment index were seen across multiple demographic groups, with particularly large increases for higher-income families and those with larger stock holdings, supported by recent rises in financial markets.
“Consumers clearly welcomed the recent easing of inflation,” Hsu said. “While sentiment appears to have turned a corner from its all-time low from June, consumers have reserved judgment about whether the trends will continue. Their outlook for the economy may have improved, but it remains relatively weak. The sustainability of robust consumer spending is contingent on continued strength in incomes and labor markets in the quarters ahead.”
Consumers expect further deceleration in inflation
Consumers’ concerns over high prices have softened somewhat over the last month—though these concerns still remain substantially higher than a year-and-a-half ago prior to the onset of elevated inflation. The share of consumers reporting that their living standards are being eroded by inflation fell slightly in December, though it remained over 40% for the seventh straight month.
A declining share of consumers blamed high prices for poor buying conditions for durable goods, cars and homes. Similarly, following a peak in July, fewer consumers spontaneously mentioned food prices during their interviews. About 25% of consumers reported hearing news about inflation, down from the peak of 38% in June 2022, but well above the 17% from June 2021.
Overall, while consumers appreciated these recent favorable trends, their attitudes continued to be weighed down by inflation—overall assessments of personal finances were essentially unchanged, Hsu said.
Economic outlook improves, but weakening economy still anticipated
Consumer expectations for the economy in the short run and the long run improved considerably, Hsu said. Both reached their most favorable reading in eight months, in large part due to the easing of price pressures.
Despite this recent improvement, the general view for the economy remains relatively negative; 65% of consumers expect unfavorable developments in the year ahead. Furthermore, unemployment expectations continued to worsen. About 45% of consumers expect unemployment to rise in the year ahead, the largest share since April 2020 as the economy shut down from the pandemic.
Consumer Sentiment Index
The Consumer Sentiment Index rose to 59.7 in the December 2022 survey, up from 56.8 in November and below last December’s 70.6. The Current Index rose to 59.4, up from 58.8 in November and below last December’s 74.2. The Expectations Index rose to 59.9, up from 55.6 in November and below last December’s 68.3.
Consumer sentiment confirmed the preliminary reading earlier this month, rising 5% above November. Sentiment remains relatively downbeat at 15% below a year ago, but consumers’ extremely negative attitudes have softened this month on the basis of easing pressures from inflation. One-year business conditions surged 25%, and the long-term outlook improved a more modest but still sizable 9%. Still, both measures are well below 2021 readings. Assessments of personal finances, both current and future, are essentially unchanged from November.
Year-ahead inflation expectations improved considerably but remained elevated, falling from 4.9% in November to 4.4% in December, the lowest reading in 18 months but still well above two years ago. Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification. At 2.9%, long run inflation expectations have stayed within the narrow, albeit elevated, 2.9-3.1% range for 16 of the last 17 months. While the sizable decline in short-run inflation expectations may be welcome news, consumers continued to exhibit substantial uncertainty over the future path of prices.
Posted: December 23, 2022 Friday 10:00 AM