Consumer sentiment creeps up at year end and worries about inflation ease

by user

The numbers: A survey of consumer sentiment rose to 59.7 in December, buoyed by falling gas prices and a rebound in stocks earlier in the month. Yet Americans are generally pessimistic about the economy.

The final reading in the sentiment poll marked a small increase from the initial 59.1 result earlier in the month, the the University of Michigan reported.

The index increased from 56.8 in November.

Consumer sentiment is still extremely weak, however. The index fell to a record low of 50 in June, just half as much as the 101 reading in the last month before the pandemic in 2020.

Key details: A gauge that measures what consumers think about their own financial situation and the current health of the economy rose slightly to 59.4 last month. One year ago, the index stood much higher at 74.2.

Another measure that asks about expectations for the next six months registered 59.9, up from 55.6 in November. It was also well below year-ago levels, though.

Americans view inflation as somewhat less of a threat. They expect the inflation rate in the next year to average about 4.4%, compared to 4.9% in the prior month.

In the longer run, consumers see inflation falling toward 2.9%.

Top Federal Reserve officials pay close attention to inflation expectations because it can be a harbinger of future price trends.

The current 12-month rate of inflation is 7.1%, based on the consumer price index. It’s fallen from a peak of 9.1% last summer.

Big picture: Falling gas prices and a slowdown in inflation have given consumers something to cheer about during the holidays. But they are worried about the what the future will bring.

The Federal Reserve is rapidly raising interest rates to slow inflation even further, but higher borrowing costs are weakening the economy. That’s likely to result in rising unemployment in 2023 — and perhaps even a recession.

Looking ahead: “While the sizable decline in short-run inflation expectations may be welcome news, consumers continued to exhibit substantial uncertainty over the future path of prices,” said survey director Joanne Hsu.

Market reaction: The Dow Jones Industrial Average

and S&P 500

XXX in Friday trades.

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