US Consumer Sentiment Sharply Rebounds In December, Up 16.1% Year-Over Year; Inflation Expectations Decline

The consumer sentiment survey conducted by the University of Michigan in December revealed a significant surge in the overall index, surprising economists, and a notable decrease in inflation expectations.

In December 2023, the consumer sentiment index rose to 69.4, marking a 13.2% increase from the November figure of 61.3 and 16.1% growth compared to December 2022. This represents the highest level of consumer confidence since August and breaks a streak of four consecutive months of decline.

Furthermore, the result significantly exceeded the expectations of economists who anticipated only a slight increase to 62.

The Current Economic Conditions index jumped from 68.3 to 74 in December, reflecting an 8.3% month-on-month increase and a 24.2% year-on-year increase.

The Consumer Expectations index strengthened from 56.8 to 66.4 in December, showing a 16.9% month-on-month increase and a 10.7% year-on-year increase.

Year-ahead inflation expectations dropped from 4.5% last month to 3.1% this month, marking the lowest reading since March 2021.

Long-term inflation expectations declined from 3.2% last month to 2.8% this month, matching the second-lowest reading since July 2021.

According to Joanne Hsu, the director of Surveys of Consumers, there was a widespread consensus of improved sentiment across various demographic groups, including age, income, education, geography and political affiliation.

Approximately 14% of consumers spontaneously mentioned the potential impact of next year’s election, suggesting that sentiment among these consumers incorporates expectations of favorable economic outcomes resulting from the 2024 election.

Market Reactions: U.S. stocks exhibited a positive response following the release of the University of Michigan’s consumer sentiment survey, effectively reversing earlier losses experienced on Friday due to a stronger-than-expected jobs report.

The SPDR S&P 500 ETF Trust SPY registered a 0.5% increase, while the SPDR Dow Jones Industrial Average ETF DIA showed a 0.4% uptick and the tech-heavy Invesco QQQ Trust QQQ experienced a 0.5% rise. Notably, small-cap stocks, represented by the iShares Russell 2000 ETF IWM, surged by a robust 1.3%.

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