| Consensus | Consensus Range | Actual | Previous | |
|---|---|---|---|---|
| Index | 74.0 | 74.0 to 74.3 | 74.0 | 74.0 |
| Year-ahead Inflation Expectations | 2.9% | 2.9% to 2.9% | 2.8% | 2.9% |
Highlights
The University of Michigan consumer sentiment index is unrevised at 74.0 in the final report for December and matches the consensus in the Econoday survey of forecasters. However, the component indexes see some revision. The overall index remains the highest since 79.3 in April. The December index does not capture the FOMC decision and forecast issued on December 18.
In December, the index for current conditions is revised down to 75.1 in the final report but remains the highest since 79.4 in February. Consumers see inflation as improved but not gone, and are inclined to make big ticket purchases of durables now to avoid higher prices perhaps in part on higher tariffs for imported goods. The expectations index for December is revised up to 73.3 but is below 76.9 in November after consumers have had time to digest some of the implications of the outcome of the presidential election.
The one-year inflation measure is revised down a tenth to 2.8 percent in December which is above the prior three months but consistent with overall less upward price pressure than in 2022 and 2023. It is at the low end of readings for 2024 which have been as high as 3.3 percent in May and as low as 2.6 percent in November. The five-year inflation expectations measure is also revised down a tenth from the preliminary report to 3.0 percent in December. This is below 3.2 percent in the prior month and essentially the same as 2.9 percent in December 2023. Inflation expectations for the medium term remain well-anchored right around the 3 percent mark. Although above the Fed's 2 percent inflation objective over a similar time horizon, its steadiness suggests no worsening in the inflation outlook.
In December, the index for current conditions is revised down to 75.1 in the final report but remains the highest since 79.4 in February. Consumers see inflation as improved but not gone, and are inclined to make big ticket purchases of durables now to avoid higher prices perhaps in part on higher tariffs for imported goods. The expectations index for December is revised up to 73.3 but is below 76.9 in November after consumers have had time to digest some of the implications of the outcome of the presidential election.
The one-year inflation measure is revised down a tenth to 2.8 percent in December which is above the prior three months but consistent with overall less upward price pressure than in 2022 and 2023. It is at the low end of readings for 2024 which have been as high as 3.3 percent in May and as low as 2.6 percent in November. The five-year inflation expectations measure is also revised down a tenth from the preliminary report to 3.0 percent in December. This is below 3.2 percent in the prior month and essentially the same as 2.9 percent in December 2023. Inflation expectations for the medium term remain well-anchored right around the 3 percent mark. Although above the Fed's 2 percent inflation objective over a similar time horizon, its steadiness suggests no worsening in the inflation outlook.
Market Consensus Before Announcement
The consensus sees sentiment and 1-year inflation expectations unrevised at 74.0 and 2.9 percent, respectively, in the December final report from the preliminary report.
Definition
The University of Michigan's Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Preliminary estimates for a month are released at mid-month and are based on about 420 respondents. Final estimates are released near the end of the month and are based on about 600 respondents.
Description
The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.
This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.
Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.
This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.
Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.
