The numbers: The University of Michigan’s gauge of consumer sentiment rebounded in December to 70.4 from a final November reading of 67.4. But that’s a big decline from where it was in December 2020, when the index read 80.7.
Economists polled by the Wall Street Journal expected an index reading of 68.0.
Key details: A gauge of consumer’s views of current conditions rose to 74.6 in December from 73.6 in November, while an indicator of expectations rose to 67.8 from 63.5 in the previous month.
Household inflation expectations for the next 5 years held steady at 3%, above its pre-pandemic level of 2.3%. Expectations for 1-year inflation were also unchanged from November at 4.9%, it’s highest level since the summer of 2008.
Big picture: Inflation continues to be consumers’ primary concern about the economy, an attitude reinforced by data released Friday showing consumer prices increasing 6.8% over the past year, the highest in nearly 40 years.
What UMich is saying: Sentiment rose in December, but was roughly in line with the average reading of the past four months, according to the survey’s chief economist Richard Curtin.
“The more interesting result was the large disparity between monthly gains among households with incomes in the lowest third of the income distribution compared with the modest losses among households in the middle and top third,” he noted. The sentiment rose by 23.6% among the lowest third of income earners, while it fell for the middle and top third. “While small differences in the direction of change are rather common, it is quite unusual to record such a large change in the bottom third: a larger one-month percentage was recorded only once before, a gain of 29.2% in June 1980, Curtin wrote.”
Curtin added that the surge in 1980 signaled the end of of the first part of a double-dip recession in the early 80s, but also warned that rising optimism among low-income households was based on expectations of rising wages, which “suggests an emerging wage-price spiral that could propel inflation higher in the years ahead.”