Consumer Sentiment Improves In December As Inflation Eases, But Consumers Are 'Still Depressed'

The latest Consumer Sentiment Report from the University of Michigan is out, and it's showing positive results.

Preliminary results from the university’s monthly survey of consumers puts its index of consumer sentiment at 64.6 in January, up from 59.7 in December.

Gregory Daco, chief economist at Ernst & Young’s U.S. branch, said on Twitter Friday that “consumers [are] still depressed,” but called the results a “strong bounce.”

The results are overall optimistic: they’re the highest it’s been in nine months. Still, the figure remains 17% below its historical average.

The survey brings data from about 500 American consumers.

The results reflect a flare of optimism as inflation slowly winds down and key commodities like gas become more affordable again.

The U-M Report: The latest CPI report confirmed on Thursday that inflation is continuing on its downward path.

While still low from a historical perspective, consumer sentiment rose in December, wrote Joanne Hsu, director of the surveys of consumers and a research associate professor at the Institute for Social Research at the University of Michigan.

Higher incomes and easing inflation also sprouted an uptick of 16% in the survey’s assessments of personal finances, she said.

For the year ahead, inflation expectations are also winding down. One-year inflation is now expected to be at 4%, down from 4.4% in December.

'This Dish Requires A Load Of Salt': Jeffrey Roach, chief economist for LPL Financial called this “a sign consumers are more convinced that inflation is easing.”

Thursday’s CPI report from the Labor Department put consumer prices up 6.5% against last year.

Influential investor and blogger James Lavish warned that “the U Michigan Consumer Sentiment Index is not a reliable indicator of future economic conditions” and said that “this dish requires loads of salt.”

Kathy Jones, chief fixed income strategist at Charles Schwab’s Center for Financial Research, said that along with other factors, the results could be a “signal of consumer softness.”

“Inflation expectations are well-anchored and improving as pricing pressures are weakening across many sectors,” said LPL’s Roach.

The chief economist said the Fed will likely hike interest rates by 0.25% at its upcoming meeting later this month.

“We shouldn’t be surprised if the Fed starts talking about pausing in the near future,” he said.

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