Michigan Consumer Sentiment Up 8% in January, Beats Forecast

This article was originally written by Doug Short. From 2016-2022, it was maintained by Jill Mislinski. Starting in January 2023, AP Charts pages will be maintained by Jennifer Nash at Advisor Perspectives/VettaFi.


The January final report came in at 64.9, up 5.2 (8.7%) from the December final. Investing.com had forecast 64.6. Since its beginning in 1978, consumer sentiment is 24% below its average reading (arithmetic mean) and 23% below its geometric mean.

Joanne Hsu, the director of surveys, made the following comments:

Consumer sentiment confirmed the preliminary January reading, remaining low from a historical perspective but continuing to lift for the second consecutive month, rising 9% above December and reaching about 3% below a year ago. While the short-run economic outlook was relatively unchanged from last month, all other components of the index increased in January. The current conditions index soared 15% above December, with improving assessments of both personal finances and buying conditions for durables, supported by strong incomes and easing price pressures. That said, there are considerable downside risks to sentiment, with two-thirds of consumers expecting an economic downturn during the next year. Notably, the debt ceiling debate looms ahead and could reverse the gains seen over the last several months; past debt ceiling crises in 2011 and 2013 prompted steep declines in consumer confidence.

Year-ahead inflation expectations receded for the fourth straight month, falling to 3.9% in January from 4.4% in December. The current reading is the lowest since April 2021 but remains well above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations remained at 2.9%, yet again staying within the narrow 2.9-3.1% range for 17 of the last 18 months and remaining elevated relative to the 2.2-2.6% range seen in the two years pre-pandemic. Consumers continued to exhibit considerable uncertainty over both long and short-term inflation expectations, indicating the tentative nature of any declines. [More...]

See the chart below for a long-term perspective on this widely watched indicator. Recessions and real GDP are included to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.