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Consumers sentiment strengthens in January

woman with shopping bags
Inflation expectations receded for the fourth straight month.

Consumers were more upbeat in January amid declining inflation expectations.

U.S. consumer sentiment rose to 64.9 in January form 59.7 in December, according to the University of Michigan’s Index of Consumer Sentiment.  The final January reading also was up from the preliminary January reading of 64.6.

The current economic conditions index jumped to 68.4 in January, up from 59.4 in December, with improving assessments of both personal finances and buying conditions for durables, supported by strong incomes and easing price pressure.

The indicator of consumer expectations for the next six months rose to 62.7 in January from 59.9 in December,  

Inflation expectations for the year ahead receded for the fourth straight month, falling to 3.9% in January from 4.4% in December. (According to the latest government figures, inflation declined to 6.5% in December compared with a year earlier. It was the sixth straight year-over-year slowdown, and down from 7.1% in November.)  

“The current reading is the lowest since April 2021, but remains well above the 2.3-3.0% range seen in the two years prior to the pandemic,” stated Joanne Hsu, director of surveys.

Long-run inflation expectations, however,  remained at 2.9%,  again staying within the narrow 2.9-3.1% range for 17 of the last 18 months and remaining elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic.

“Consumers continued to exhibit considerable uncertainty over both long and short-term inflation expectations, indicating the tentative nature of any declines,” Hsu said.

Hue noted there are considerable downside risks to sentiment. Notably, the debt ceiling debate looms ahead and could reverse the gains seen over the last several months.

“Past debt ceiling crises in 2011 and 2013 prompted steep declines in consumer confidence,” she said.

The Surveys of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone.

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