Consumer Sentiment Rises Higher Than Predicted Despite Market Plunge

U.S. consumer sentiment unexpectedly improved as views on economic conditions improved, helping bolster the outlook for American spending.

The University of Michigan’s final December sentiment index rose from the prior month to 98.3, topping all forecasts in Bloomberg’s survey of economists, a report Friday showed. The gauge of current conditions climbed to a six-month high while the expectations measure slipped.  In December 2013 under President Barack Obama, the index was at 82.5.

Key Insights

• Confidence remains at historical highs amid a tight labor market, wage gains, and more cash on hand from tax cuts and cheaper fuel. Confidence is a signal that consumer spending -- the largest part of the economy -- is poised to continue contributing to this quarter’s growth.
• At the same time, headwinds including a trade war with China and U.S. stocks heading for the worst December since 1931 can be seen in the responses, as expectations are less upbeat. The final reading for the expectations gauge was the lowest since June, though improved from this month’s preliminary reading.
• A measure of buying conditions for long-lasting goods rose to the best reading since March.
• Inflation expectations for the year ahead fell to 2.7 percent from 2.8 percent in November, while the inflation rate over the next five to 10 years was seen at 2.5 percent. That longer-term reading, though, was higher than the 2.4 percent seen in this month’s preliminary survey.
• “ While the plunge in stock prices has recently garnered the most attention in the national press, consumers have focused more on their concerns about income and job prospects,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

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• Fifty-four percent of respondents in the survey said their finances had recently improved.
• The gauge measuring attitudes about the 12-month outlook for the economy improved slightly from November.
• Interviews for the preliminary December report were conducted from Nov. 24 to Dec. 5, while the final survey ended Dec. 17.