U.S. Consumer Sentiment Slightly Improves in December

Consumer Sentiment Trends in December

The University of Michigan's consumer sentiment index showed a slight improvement in December, rising to 53.3 from November's reading of 51. This increase surpassed economists' forecasts of 52, indicating a modest uplift in consumer confidence. However, the sentiment index remains 28% lower compared to the same period a year ago, reflecting the ongoing challenges facing the U.S. economy.

The slight improvement in December marks the first monthly gain in sentiment since July. While consumers' views on current economic conditions showed little change, there was a noted improvement in future expectations, driven by a 13% rise in anticipated personal finances. Despite these gains, sentiment levels remain significantly below the pre-pandemic average, highlighting the fragile nature of consumer confidence amidst economic uncertainty.

Inflation Expectations and Economic Outlook

Year-ahead inflation expectations have improved, dropping to 4.1% in December from 4.5% in the prior month. This marks the lowest inflation expectation since January and suggests consumers are beginning to anticipate some relief from persistently high prices. However, inflation remains well above the Federal Reserve's 2% target, keeping pressure on household budgets.

Despite the slight improvement in inflation expectations, concerns about the overall economic outlook persist. Mixed labor market signals add to the uncertainty. For instance, while initial jobless claims recently declined to multi-year lows, reports of layoffs and stagnant wage growth continue to weigh on consumer sentiment. Joanne Hsu, director of the University of Michigan's economic surveys, noted that while expectations for personal finances have improved, the overall sentiment remains subdued as high prices continue to burden consumers.