University of Michigan Preliminary Consumer Sentiment Index Increases for December

The University of Michigan today (Friday 12-10-21) released its preliminary Consumer Sentiment Index (CSI) for December. The CSI increased to a reading of 70.4 in December, up from 67.4 in November. This is a month-over-month increase of 4.5%, but it is down -12.8% year-over-year (80.7 in December 2020).

The Current Economic Conditions increased to a reading of 74.6 in December, up from 73.6 in November. This is a month-over-month increase of 1.4%, but it is down -17.1% year-over-year (90.0 in December 2020).

Finally, the Index of Consumer Expectations increased to a reading of 67.8 in December, up from 63.5 in November. This is a month-over-month increase of 6.8%, but it is down -9.1% year-over-year (74.6 in December 2020).

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

“Sentiment posted a small overall gain in early December (+4.5%), although it was still nearly identical to the average reading in the prior four months (70.6). The more interesting result was the large disparity between monthly gain among households with incomes in the lowest third (+23.6%) of the income distribution compared with the modest losses among households in the middle (-3.8%) and top third (-4.3%). While small differences in the direction of change are rather common, it is quite unusual to record such a large change in the bottom third: a larger one-month percentage was recorded only once before, a gain of 29.2% in June 1980. While it is usually assumed that such extreme changes represent an erroneous result due to small samples, in 1980 it was the households in the bottom income third that initially signaled the end of the first part of the double recession in 1980-82, with upper income households following in subsequent months.”

“The core of the renewed optimism among the bottom third was the expectation of income increases of 2.9% during the year ahead; the last time a higher gain for this group was expected was in 1981. This suggests an emerging wage-price spiral that could propel inflation higher in the years ahead. When directly asked whether inflation or unemployment was the more serious problem facing the nation, 76% selected inflation while just 21% selected unemployment (the balance reported the problems were equal or they couldn’t choose). The dominance of inflation over unemployment was true for all income, age, education, region, and political subgroups. While a shift in policy emphasis is necessary, it will be difficult to gauge the right balance between fiscal and monetary policies that both trims inflation and maintains the unemployment rate near its current lows.”