Consumer sentiment jumps to highest level since July 2021

The numbers: Consumer sentiment jumped in January to the highest level since the summer of 2021, reflecting fresh optimism about the economy as inflation slows and incomes rise.

The preliminary reading of the sentiment survey shot up to 78.8 from 69.7 in December, the University of Michigan said Friday. Two straight strong increases pushed the index to its highest level since July 2021.

The consumer-sentiment survey reveals how Americans feel about their own finances as well as the broader economy. While sentiment has improved lately, it’s still well below pre-pandemic levels of around 100.

Key details: A gauge that measures what consumers think about the current state of the economy rose to 83.3 from 73.3 in December.

A measurement of expectations for the next six months advanced to 75.9 from 67.4.

Both readings are also the highest since July 2021.

Americans think inflation will average 2.9% in the next 12 months, marking the lowest level in four years. The current rate of inflation is 3.4%, but it’s decelerated substantially since the middle of 2022.

Big picture: Inflation is slowing toward the Federal Reserve’s 2% annual target, the economy is still growing, unemployment is low and incomes are finally rising faster than prices.

The U.S. might avoid a widely forecasted recession if these conditions hold.

Looking ahead: “Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” said Joanne Hus, director of the sentiment survey.

Market reaction: The Dow Jones Industrial Average
DJIA,
-0.06%
and the S&P 500
SPX,
+0.03%
rose in Friday trading.

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