Consumer Sentiment Jumps to 7-Month High, Near-Term Inflation Expectations Jump

Shoppers look for deals on 'Black Friday' at a shopping mall located in Temecula, Calif., on Nov 29, 2024. John Fredricks/The Epoch Times

Consumer sentiment climbed to its highest level in seven months in December, driven by improved perceptions of current economic conditions, according to preliminary data from the University of Michigan’s Surveys of Consumers.

The survey, released on Dec. 6, showed that overall consumer sentiment rose 3.1 percent from November, to a reading of 74.0 at the beginning of December, marking the fifth consecutive month of increases and the highest level since April.

The jump in sentiment was driven by a significant 21.6 percent surge in the index of current economic conditions, which rose to 77.7 mostly due to an increase in buying conditions for durable goods. The leap stems mostly from consumers aiming to lock in purchases before potential future price hikes, according to Joanne Hsu, director of the survey.

“Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases,” Hsu said in a statement.

The survey also showed long-run inflation expectations edging lower while near-term expectations rose significantly. The rise in the short-run expectations was subject to a partisan gap as Democrats expected inflation to average around 3 percent over the coming 12 months while Republicans see prices growing at closer to 1 percent over that period.

Overall, consumers expect prices to rise at an annual rate of 2.9 percent over the next 12 months, up from 2.6 percent pace of annual price growth expected last month. By contrast, five-year-ahead inflation expectations ticked down from 3.2 percent last month, to 3.1 percent in December.

This divergence between short- and long-run inflation expectations could reflect the view that early policies from the incoming Trump administration—such as tariffs and tax cuts—could add to inflationary pressures in the near term, but as other promised policies like regulatory cuts and increased energy production come online, this would lead inflation to fall over a longer horizon. On the campaign trail in October, President-elect Donald Trump pledged to slash energy prices in half within 12 months thanks to policy moves like expedited environmental approvals that would surge electricity capacity.

Differing views of the incoming administration’s expected policy impacts led to a partisan gap in inflation expectations, according to the survey. Republicans think the annual pace of inflation will average 1.3 percent over the next 12 months, Democrats believe it will jump to 3.2 percent, while Independents see it at 2.9 percent.

“Throughout this month’s interviews, Democrats voiced concerns that anticipated policy changes, particularly tariff hikes, would lead to a resurgence in inflation,” Hsu said. “Republicans disagreed; they expect the next president will usher in an immense slowdown in inflation.”

While the future path of inflation remains unclear, price growth remains a top concern for Americans, according to the latest consumer confidence report from The Conference Board.

“Elevated prices remain top of mind,” states the report, released on Nov. 26. “In a special question about concerns and hopes for 2025, consumers overwhelmingly selected higher prices as their top concern and lower prices as their top wish for the new year.”

The Conference Board report and the one from the University of Michigan diverged in terms of price growth expectations—with the former showing a decline in year-ahead inflation expectations. However, both aligned on the broader measure of sentiment, with both showing an uptick as consumers became more optimistic about future job availability, which in The Conference Board survey reached its highest level in three years.

“The proportion of consumers anticipating a recession over the next 12 months fell further in November and was the lowest since we first asked the question in July 2022,” Dana Peterson, chief economist at The Conference Board, said in a statement.

Besides fewer consumers expecting a recession, a panel of professional economic forecasters also think risks of a downturn have fallen. The latest National Association for Business Economics (NABE) survey showed that economists have raised their growth projections substantially for 2025 and that most of them no longer see downside risks to the economy as predominant.

Meanwhile, the latest Dec. 5 real-time projection of economic growth from the Federal Reserve Bank of Atlanta estimates that the U.S. economy is expanding at a 3.3 percent annualized pace in the fourth quarter. The economy grew at 2.8 percent in the third quarter, with consumer spending being the biggest contributor, accounting for around two-thirds of GDP growth.

The uptick in the latest sentiment readings suggests that consumers are poised to continue spending in the final quarter of the year, helping to buoy the economy.