Consumers say they feel more optimistic and think inflation will be lower ahead, continuing a trend of upbeat economic news for a White House that’s politically vulnerable on the economy.
The University of Michigan’s monthly consumer sentiment index rose to 78.8 in the preliminary reading for January, which was issued Friday. That’s the highest level since July 2021, when the economy was still coming back strongly from the onset of the COVID-19 pandemic.
“Consumer views were supported by confidence that inflation has turned a corner and strengthening income expectations,” said Surveys of Consumers Director Joanne Hsu in a statement. “Over the last two months, sentiment has climbed a cumulative 29%, the largest two-month increase since 1991 as a recession ended.”
The White House, which has suffered politically from a gap in how people say they feel about the economy and bullish economic data, took a victory lap.
“President [Joe] Biden is making progress lowering inflation while maintaining a strong job market: wages have risen faster than inflation for 10 months in a row, 14.3 million jobs have been created, and inflation has fallen by about two-thirds,” said Jared Bernstein, the chair of the White House’s Council of Economic Advisers, in a statement.
“We have more work to do, but we’re on the right path as we execute President Biden’s agenda, and people are starting to feel it.”
The Michigan sentiment index is one of the oldest and most high-profile trackers of how consumers are feeling. Another, the consumer confidence index from the Conference Board business think tank, similarly showed a gain in December, the latest data available.
Both indices survey people on their assessments of the current economy and their expectations for the economy ahead. For the Michigan sentiment index, the reading for current conditions rose 13.6% in January while the expectations measurement was up 12.6%. Final data for the month is set to be published Feb. 2.
The report also contained good news on inflation expectations, which fell slightly for both the next year and the next five years.
“The current [year-ahead] reading is the lowest since December 2020 and is now within the 2.3-3.0% range seen in the two years prior to the pandemic,” Hsu said.
Friday’s report followed a recent spate of good economic indicators for the White House. The Labor Department said Thursday that weekly new claims for jobless benefits in the second week of January fell to their lowest level since mid-September 2022. The producer price index, which tracks prices at the wholesale level, posted a 0.1% decline in December.
But the consumer price index, which tracks prices that consumers pay at checkout, posted a stronger-than-expected 0.3% gain in December, reflecting the difficulty in ridding the economy of the last bit of inflation above the Federal Reserve’s target range.
And prices remain a political problem for the Biden White House. An Economist/YouGov survey of 1,660 adults in mid-January found that 85% think inflation is a serious or somewhat serious problem now. The same survey found that Biden’s approval rating on the economy remained underwater, at 40%.
Republicans continue to pound away at the prices as the main way to criticize the economy. When the consumer price index report came out Jan. 11, House Speaker Mike Johnson (R-La.) said on social media that it was “a disappointment” and that “Bidenomics continues to cost every American family.”