When it comes to the economy, Americans are feeling invigorated by holiday spirits and hopes for next year’s election.
The University of Michigan’s barometer of consumer sentiment soared to a preliminary December reading of 69.4, the best reading since August.
Economists had been predicting only a mild pick-up to 61.9 after sentiment had sunk to a six-month low of 61.3 in November.
Falling inflation was the primary driver of improved sentiment. Inflation expectations dramatically reversed their recent increase. The year ahead expectation metric fell to 3.1 percent, down form 4.5 percent in November. That’s the lowest since March 2021.
The longer-run expectation measure, which gauges consumer expectations for the average over the next five years, fell to 2.8 percent from 3.2 percent in November. The prior month’s reading has the highest in over a decade.
“All five index components rose this month, led by surges of over 24% for both the short and long-run outlook for business conditions. There was a broad consensus of improved sentiment across age, income, education, geography, and political identification,” said Joanne Hsu, the director of the survey.
The gauge of sentiment about current conditions rose to 74, which is 8.3 percent above the prior month’s reading and 24.2 percent above the year-ago level. The expectations gauge rose by 16.9 percent from November and is up 10.7 percent from a year ago.
Next year’s presidential elections appear to be giving sentiment a boost, likely due to increased hope for a change of leadership in the White House. The polling average, as calculated by Real Clear Politics, has Donald Trump ahead by 2.1 percentage points.
“A growing share of consumers—about 14%—spontaneously mentioned the potential impact of next year’s elections. Sentiment for these consumers appears to incorporate expectations that the elections will likely yield results favorable to the economy,” Hsu said.
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