Consumer sentiment improves in early December

Sentiment among U.S consumers turned more positive in the beginning of December as inflation concerns eased to a 15-month low.

The University of Michigan’s overall index of consumer sentiment rose 4% to 59.1 in its preliminary December reading, up from 56.8 in November.

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, the report noted.

All components of the index were up. Consumer’s views of current economic conditions rose to 60.2 in December from 58.8 in November, while the indicator of expectations for the next six months rose to 58.4 from 55.6 last month.

“Throughout the survey, concerns over high prices —which remain high relative to just prior to this current inflationary episode — have eased modestly,” said Joanne Hsu, surveys of consumers director, University of Michigan.

Sentiment for Democrats and Independents rose 12% and 7%, respectively. Sentiment for Republicans fell 6%.

Year-ahead inflation expectations improved considerably, falling to 4.6% in December, from 4.9% in November. It’s the lowest reading in 15 months but still well above the reading two years ago, Hsu noted.

Declines in short-run inflation expectations were visible across the distribution of age, income, education, as well as political party identification. At 3.0%, long run inflation expectations has stayed within the narrow (albeit elevated) 2.9 to 3.1% range for 16 of the last 17 months, Hsu said.

The University of Michigan’s report came out the same day, Friday, that

the Labor Department reported wholesale prices rose more than expected in November, amid surging food prices.

Earlier this month, the National Retail Federation said that consumer spending should remain positive heading into 2023 even as its rapid pace continues to slow.

Even with inflation, however, “the willingness to spend has been stable,” the report said. Retail sales for the first 10 months of the year increased 7.5% year over year, on track to meet forecasts that overall 2022 retail sales and November-December holiday sales will both grow between 6% and 8% over 2021. While the pace slowed to 6.5% in October, that was largely due to the comparison against strong early holiday shopping in 2021.

[Read More: NRF: GDP growth slows but consumer spending remains positive]