The numbers: Consumer sentiment shot up in January to the highest level since the summer of 2021, as Americans got some relief from waning inflation and saw an improved economy.
The final reading of the sentiment survey edged up to 79.0 from a preliminary 78.8 earlier in the month and from 69.7 in December, the University of Michigan said Friday. That is the highest mark 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 prepandemic levels of around 100.
Key details: A gauge that measures what consumers think about the current state of the economy slipped to 81.9 from an initial 83.3. But it was still up sharply from 73.3 in December.
A measurement of expectations for the next six months perked up to 77.1 from 75.9 earlier in January and from 67.4 in December.
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 has slowed considerably in the last year and a half.
Big picture: Inflation is waning, but the economy is still growing faster than the Federal Reserve expected. A lot faster, it turns out.
A hot economy could make it harder for the Fed to reduce inflation to its 2% target and could potentially delay a cut in interest rates. At the same time, though, the U.S. could avoid a widely predicted recession.
Looking ahead: “After reserving judgment last fall about whether the slowdown in inflation would persist, consumers now feel assured that inflation will continue to soften,” said Joanne Hsu, director of the sentiment survey.
Market reaction: The Dow Jones Industrial Average
DJIA,
fell but the S&P 500
SPX,
rose in Friday trading.
A stronger-than-expected January jobs report reduced expectations that the Federal Reserve would cut interest rates soon.
