Home Markets Consumer Confidence Rises as Inflation Outlook Falls, Survey Finds

Consumer Confidence Rises as Inflation Outlook Falls, Survey Finds

by SuperiorInvest

An employer representative at a Veterans Employment and Resource Fair in Long Beach, California, on January 9, 2024.

Eric Thayer | Bloomberg | fake images

Consumers have become more confident about the direction of the economy and inflation in early 2024, despite lingering concerns about an imminent slowdown, a survey released on Friday showed.

The University of Michigan Consumer Survey showed a reading of 78.8 in January, its highest level since July 2021 and a 21.4% increase from a year ago. This came after a big jump in December and comes despite public opinion polls showing concern about the direction of the country.

In two months, confidence showed its biggest increase since 1991, said Joanne Hsu, director of the survey.

“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” Hsu said. “Both Democrats and Republicans showed their most favorable readings since the summer of 2021. Sentiment is now up nearly 60% above the all-time low measured in June 2022 and is likely to provide a positive boost to the economy.”

Along with improving prospects for general conditions, respondents showed greater confidence that inflation is falling.

The outlook for the inflation rate a year from now decreased to 2.9%, down from 3.1% in December, the lowest reading since December 2020. The Federal Reserve has raised short-term interest rates at its highest level in more than 22 years and inflation has followed suit downwards, although it remains above the central bank’s 2% target.

At the same time, the survey’s current conditions index also rose further, reaching 83.3, or 21.6% higher than a year ago.

Consumer confidence has improved amid a drop in gasoline prices and solid stock market gains. The price at the pump for a gallon of regular gasoline is about 30 cents lower than a year ago, according to AAA, and the S&P 500 is near a record high.

The survey is “another sign that the economy is on track for a soft landing,” said Andrew Hunter, deputy chief economist at Capital Economics. However, he noted that these types of surveys do not always reflect consumer behavior.

Stocks rose slightly following the release, while Treasury yields also rose.

Markets have been tied to expectations about where the Fed will set interest rates this year. The prevailing outlook is for a series of cuts of up to six-quarters of a percentage point this year. But the timing of those cuts is unclear, and market prices now point to an unknown as to whether the Fed will ease policy in March or wait until May.

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