Consumer Sentiment is Improving, But Fell Short Of Post-Election Bump Expectations

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The presidential election did little to change overall trends in consumer views as consumer sentiment lifted for the fourth consecutive month, inching up to its highest reading since April 2024. Consumers said they see inflation getting worse over the next year, anticipating an inflation rate of 3.5%, up from 3.2% in last month’s survey and above the average range seen prior to the pandemic. The survey also showed that consumers’ Automated trading long-range inflation expectations of five years ahead ticked higher, remaining well above the pre-pandemic range. The worsening sentiment on price pressures come as inflation readings have continued to move higher in 2024.

1. Furthermore, consumers saw favorable developments throughout the economy as well, Hsu said.
2. Fed officials have said repeatedly that the central bank won’t be in a position to consider cuts to the benchmark interest rate until inflation is under control.
3. For homebuying conditions, concerns over high interest rates fell to its lowest reading in 15 months.
4. “For much of 2023, consumers had reserved judgment about the inflation slowdown and whether it would persist,” said U-M economist Joanne Hsu, director of the Surveys of Consumers.
5. The University of Michigan’s Consumer Sentiment Index climbed to 71.8 this month, the highest since April, from 70.5 in October.

The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.

This indicator is important to retailers, economists, and investors, and its rise and fall has historically helped predict economic expansions and contractions. “The expectations index surged for Republicans and fell for Democrats this month, a reflection of the two groups’ incongruous views of how Trump’s policies will influence the economy,” Hsu wrote. Consumers reported stronger incomes in November, and they expect further income gains in the year ahead. In the two years prior to the pandemic, year-ahead inflation expectations ranged between 2.3% and 3.0%. Consumer inflation expectations are an important gauge for Federal Reserve officials, who closely watch survey results for indications if consumer behavior will lead to higher prices.

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«Overall, the stability of national sentiment this month obscures discordant partisan patterns,» Surveys of Consumers Director Joanne Hsu said in a statement. «In a mirror image of November 2020, the expectations index surged for Republicans and fell for Democrats this month, a reflection of the two groups’ incongruous views of how Trump’s policies will influence the economy.» Consumer sentiment is a statistical What is a breakout measurement of the overall health of the economy as determined by consumer opinion. Year-ahead inflation expectation declined to 2.6%, down a tick from the prior month, but inflation expectations for five years out increased to 3.2%, showing increasing uncertainty over long-run prices.

U.S. Consumer Sentiment Improves Less Than Previously Estimated In November

The first major consumer sentiment since the presidential election showed that people felt better about the economy, but the bump wasn’t as big as economists were expecting. More consumers anticipate a strengthening economy in the latest survey, continuing an upward trend that began in April 2024. They expect labor market conditions to remain strong; less than one-third of consumers expect unemployment to increase in the year ahead, down from 38% a year ago. “While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions. They expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead,” said survey director Joanne Hsu.

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“Over the last two months, consumers have finally felt assured that their worst fears for the economy would not come to pass. Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as the First Gulf War and a recession ended. Sentiment has now risen nearly 60% above the all-time low measured in June 2022 and is now 7% shy of the historical average invest in startups with these 7 you can buy on seedinvest right now reading since 1978. These patterns reflect the two groups’ contrasting views on how Trump’s policies will influence the economy. Unemployment expectations improved slightly from last month and sit near its historical average.

Sentiment for consumers mentioning food were substantially higher than for those who did not, suggesting that high prices of food continue to weigh on a sizable share of consumers. Consumer concerns over high interest rates for durable goods reached their lowest levels in two years, which will likely provide some support for consumers’ willingness to make these purchases in the months ahead. The share of consumers spontaneously mentioning the negative effect of high interest rates or tight credit on buying conditions for large purchases fell this month.

The Index of Consumer Expectations (a sub-index of ICS) is included in the Leading Indicator Composite Index published by the U.S. The Michigan Consumer Sentiment Index has provided a relatively accurate forecast of future consumer confidence and spending for the past several decades. For more information about the Michigan CSI and its impact on economic analysis, consult your investment advisor or log on to the Surveys of Consumers, University of Michigan website.

History shows that consumer confidence has been at its lowest point just prior to and in the midst of recessionary periods. The index rises when consumers regain confidence in the economy, which portends increased consumer spending and thus economic growth. This growth, in turn, leads to greater interest from foreign investors, which results in the increased value of the dollar against other foreign currencies. Historically speaking, the value of the dollar has usually risen whenever the Michigan CSI has come in at a higher level than was anticipated and fallen when the index came in lower.

Furthermore, consumers saw favorable developments throughout the economy as well, Hsu said. Overall, consumers perceived few developments, positive or negative, in the state of the economy since the start of the new year. Several major economic indices and indicators can help investors and economists predict where the economy is headed. The Consumer Price Index (CPI), the Producer Price Index (PPI), and the Gross Domestic Product (GDP) all forecast the future strength of the U.S. economy. The Michigan Consumer Sentiment Index is another key indicator designed to illustrate the average U.S. consumer’s confidence level.