Consumer Sentiment Stays Elevated at Beginning of Year

U.S. consumer sentiment remained elevated in January as record stock prices and a strong job market buoy Americans, suggesting spending will continue its steady gains.

The University of Michigan’s preliminary sentiment index for January edged down to 99.1 from a seven-month high of 99.3 in December, data showed Friday. The gauge of current conditions increased slightly to 115.8 while the expectations index ticked down to 88.3.

Key Insights

• Relatively strong sentiment signals consumers are positioned to help driving the record-long economic expansion even as business investment remains sluggish. At the same time, it’s the first decline since August, suggesting growth will remain moderate at the start of 2020 after cooling at the end of last year.
• The measure of Americans’ expectations for inflation five to 10 years out rose to 2.5% from a record-low 2.2%. The Federal Reserve closely monitors this measure, and policy makers have signaled they will hold interest rates steady following last year’s three cuts in part to keep price gains rising toward their 2% goal.
• Other reports this week showed retail sales excluding autos climbed in December by the most in five months, while housing starts surged to a 13-year high. A trade truce between the U.S. and China may support sentiment following an escalating tariff battle over the past two years that has at times whipsawed confidence.
• The Michigan data compare with a 19-year high in the weekly Bloomberg Consumer Comfort Index. The Conference Board’s confidence gauge fell in December for the fourth time in five months, though is still elevated by historical standards.
• Consumer expectations for inflation in the coming year rose to 2.5% from 2.3% in the prior month.
• A measure of buying conditions for household durable goods rose to the highest in more than a year.