University of Michigan Reports Final Results of Its Consumer Sentiment Index for January

On Friday, the University of Michigan released the final results of its Surveys of Consumers for January.

• The Index of Consumer Sentiment increased to a reading of 79.0 in January, up from 69.7 in December. This is a month-over-month increase of 13.3% and up 21.7% year-over-year (64.9 in January 2023).
• Current Economic Conditions rose to a reading of 81.9 in January, up from 73.3 in December. This is a month-over-month increase of 11.7% and up 21.7% year-over-year (68.5 in January 2023).
• The Index of Consumer Expectations climbed to a reading of 77.1 in January, up from 67.4 in December. This is a month-over-month increase of 14.4% and up 23.2% year-over-year (62.6 in January 2023).

In remarks accompanying the report, Surveys of Consumers Director Joanne Hsu said:

“Consumer sentiment confirmed its early-month reading, surging 13% to reach its highest level since July 2021, reflecting improvements in the outlook for both inflation and personal incomes. January’s gain has been exceeded only five times since 1978, one of which was last month at an even larger increase of 14%. Consumers expressed gains in their views on their personal finances as well as the macroeconomy; the short-run business outlook soared 27%. After reserving judgment last fall about whether the slowdown in inflation would persist, consumers now feel assured that inflation will continue to soften. Sentiment has resumed the upward trajectory from the all-time low measured in June of 2022, which had stalled in the late summer and fall of 2023. However, consumers expressed considerable disagreement about the future of the economy. About 41% of consumers expect good times in the year ahead for business conditions, while 48% expect bad times. This still represents a vast improvement over the past year and a half; in June of 2022, a whopping 79% of consumers expected challenging times ahead for the economy. Sentiment is now 7% below the historical average since 1978.

Year-ahead inflation expectations eased to 2.9%, down from 3.1% in December and 4.5% in November. The current reading is the lowest since December 2020 and is now within the 2.3–3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations were unchanged from last month at 2.9%, staying within the narrow the 2.9–3.1% range seen for 27 of the last 30 months and remaining slightly elevated relative to the 2.2–2.6% range seen in the two years pre-pandemic.”