University of Michigan Final Consumer Sentiment Index Increases in December

The University of Michigan today (12-23-21), released its final Consumer Sentiment Index (CSI) for December. The Index of Consumer Sentiment increased to a reading of 70.6 in December, up from 67.4 in November. This is month-over-month increase of 4.7%, but it is down -12.5% year-over-year (80.7 in December 2020).

The Current Economic Conditions increased to a reading of 74.2 in December, up from 73.6 in November. This is a month-over-month increase of 0.8%, but it is down -17.6% year-over-year (90.0 in December 2020).

Finally, the Index of Consumer Expectations increased to a reading of 68.3 in December, up from 63.5 in November. This is a month-over-month increase of 7.6%, but it is down -8.4% year-over-year (74.6 in December 2020).

In a statement prepared to accompany the release of the preliminary December CSI, Richard Curtain, Director of Surveys for the University of Michigan said:

“The Sentiment Index improved in December. The uptick was primarily due to significant gains among households with incomes in the bottom third of the distribution. Indeed, the bottom third expected their incomes to rise during the year ahead by 2.8%, up from 1.8% last December, and the highest level since 2.9% was recorded in 1999. There have only been five times in the past half century that income expectations among low-income households have exceeded the December 2021 level. The announced increase in Social Security payments of 5.9% in 2022 was partly responsible for the gain, and 5.0% increases in expected wage among the youngest workers.”

“Importantly, too few interviews were conducted to capture the impact of the rapid spread of the Omicron variant in the US. Confidence and spending are likely to be depressed in January, but it is too early to know the eventual impact of Omicron on the economy.”

“Consumers’ evaluations of their current finances remained unchanged at lower levels due to the erosion of their living standards from rising inflation. One-in-four households specifically cited the negative impact of inflation on their living standards.”

“The partisan nature of consumer expectations has overwhelmed other economic correlates. Democrats anticipate much lower inflation rates than Republicans for the year ahead (3.0% vs. 6.8%) and over the longer term (2.3% vs. 4.4%). Moreover, three times as many Republicans as Democrats cited the negative impact on their finances from inflation (47% vs. 16%). Sharp differences in expected gains in nominal incomes were also found by partisanship, as Democrats anticipated much higher gains than Republicans (2.7% vs. 0.4%). Independents, who are least likely to be influenced by partisanship, equaled the median expected income response across partisan subgroups. This finding has been widely replicated across many other expectations and indicates that partisan extremes generally offset, and the sum is approximately equal the views of Independents.”