Consumer Confidence in Economy and Inflation Rises at Start of 2024: Survey
Consumer confidence in the economy and inflation has seen a significant increase at the beginning of 2024, according to a survey released by the University of Michigan. Despite concerns about a potential economic slowdown, consumers are feeling more positive about the direction of the economy and inflation.
The survey, called the Consumer Survey of Consumers, reported a reading of 78.8 for January, which is the highest level since July 2021 and a 21.4% increase from a year ago. This follows a substantial jump in December and is surprising considering public opinion surveys have shown worry about the nation’s direction.
Joanne Hsu, the director of the survey, highlighted that consumer views were supported by confidence in the decline of inflation and strengthening income expectations. Both Democrats and Republicans showed their most favorable readings since the summer of 2021. The sentiment has risen nearly 60% above the all-time low measured in June 2022, which is likely to provide positive momentum for the economy.
In addition to the improved outlook on general conditions, respondents of the survey also displayed more confidence in the decrease of inflation. The outlook for the inflation rate a year from now declined to 2.9%, down from 3.1% in December, marking the lowest reading since December 2020. The Federal Reserve has raised short-term interest rates to their highest level in over 22 years, and inflation has followed suit by decreasing, although it still remains above the central bank’s 2% target.
The survey’s index of current conditions also saw a significant increase, rising to 83.3, which is 21.6% higher than a year ago. This improvement in consumer sentiment can be attributed to lower gasoline prices and solid gains in the stock market. Gas prices at the pump have decreased by about 30 cents compared to a year ago, and the S&P 500 is nearing a record high.
Andrew Hunter, the deputy chief economist at Capital Economics, sees the survey as another sign that the economy is on track for a soft landing. However, he cautions that consumer behavior doesn’t always align with survey results.
Following the release of the survey, stocks experienced a slight increase, and Treasury yields were also higher. The market has been closely tied to expectations of the Federal Reserve’s interest rate decisions this year. The prevailing outlook suggests a series of up to six quarter percentage point cuts in interest rates. However, the timing of these cuts remains uncertain, with market pricing indicating a tossup between easing in March or waiting until May.
Overall, the survey’s findings indicate that consumers are feeling more optimistic about the economy and inflation at the start of 2024. Despite concerns about a potential slowdown, consumer confidence is on the rise, supported by declining inflation and positive income expectations. While these survey results provide hope for the economy, it remains to be seen how they will translate into actual consumer behavior.