U.S. consumer sentiment improves by 4.5 percent in December from November, more than expected, but sentiment remains broadly somber' as worries linger over the employment market and high prices, according to the University of Michigan survey.

The December preliminary reading rises to 53.3 from 51.0 in November but way down from 74.0 in December 2024. The outcome tops the Econday consensus expectation of 52.0.

Current conditions decline to 50.7 from 51.1, a relatively flat reading. Expectations perked up to 55.0 from 51.0. That reflects an improved view of expected personal finances with improvement evident across all demographics. The survey noted that even with the improvement, personal finances are down 12 percent from the beginning of 2025.

Inflation expectations continue to improve with 1-year at 4.1 percent, the lowest since January 2025, versus 4.5 percent in November. Five-year expectations slip to 3.2 percent, same as in January 2025, from 3.4 percent in November. For 5-year inflation expectations, 2024 figures ranged between 2.8 and 3.2 percent, while the readings in 2019 and 2020 were below 2.8 percent.

Not a pretty picture for consumer sentiment with 52.0 expected for the first read on December versus an abysmal 51.0 in the November final. The index was in the 70s a year ago.

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.

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.