Consumer Sentiment Hits Highest Level Since 2021

Consumer sentiment rose in January to its highest level since July 2021, according to the University of Michigan Survey of Consumers released Friday. Preliminary readings showed sentiment jumped to 78.8 from 69.7 percent last month, marking the second straight month of strong increases.

The index has now rebounded nearly 60% after plumbing record lows in June 2022. It is now just 7% shy of the historical average since 1978.

The survey’s reading of one-year inflation expectations fell to 2.9% this month, the lowest level since December 2020. That was down from 3.1% in December and put these inflation expectations within the 2.3%-3.0% range observed in the two years prior to the COVID-19 pandemic.
Though there is no strong correlation between sentiment and consumer spending, the main engine of the economy, the surge could help to allay fears of a recession. Americans have maintained spending despite higher prices and borrowing costs as labor market tightness keeps wage growth elevated.