consumer sentiment
Consumer sentiment confirmed the preliminary February reading at 67.0, rising a modest 3% above January.
After lifting for the third consecutive month, sentiment is now 17 index points above the all-time low from June 2022 — but remains almost 20 points below its historical average.
Consumers with larger stock holdings exhibited particularly large increases in sentiment. Overall, February’s reading was supported by a 12% improvement in the short-run economic outlook, while all other index components were essentially unchanged.
The median expectation for one-year inflation (blue line) increased to 4.1%.
The median expectation for long-term inflation (green line) remained unchanged at 2.9%.
Year-ahead inflation expectations rebounded to 4.1% this month, from 3.9% in January and 4.4% in December. Much of this increase was concentrated among consumers with less education and those over the age of 65. Consumers continued to exhibit considerable uncertainty over short-run inflation, and thus their expectations may be unstable in the months to come. Long-run inflation expectations remained at 2.9% for the third straight month and stayed within the narrow 2.9-3.1% range for 18 of the last 19 months.
The mean expectation for one-year inflation (blue line) increased to 5.9%.
The mean expectation for long-term inflation (green line) increased to 4.0%.
Expected Change in Unemployment Over the Next 12 Months
About 21% of consumers reported hearing negative news about inflation, but an even higher 28% heard unfavorable news about unemployment. With unemployment at its lowest rate in nearly 70 years, about 40% of consumers expect unemployment to increase in the year ahead, compared with only 25% a year ago.
Overall, concerns are strongest among consumers with more income — consistent with well-publicized layoffs largely affecting white-collar jobs, including in the technology sector. In contrast, lower-income consumers have a more positive outlook for labor markets. This runs counter to the typical pattern, where higher-income consumers tend to have more favorable expectations for labor markets than their lower-income counterparts.
Current Economic Conditions
The University of Michigan Current Economic Conditions Index increased to 70.7.
The University of Michigan Consumer Expectations Index decreased to 64.7.
In spite of having weaker expectations for labor market conditions across the economy, higher-income consumers continue to expect stronger growth for their own incomes in the next year relative to lower-income consumers. Comparisons by education groups show similar patterns. Taken together, our data suggest that while some groups of consumers may expect deterioration in labor markets this year, they generally do not expect to be personally affected. Indeed, there are few differences across income in their expected probabilities of losing one’s job.
On average, consumers report an 18% probability of losing their job over the next 5 years, just below the historical average. As such, while consumers continue to adjust their spending in light of high prices and interest rates, their total spending is likely to remain robust at least in the short run given their expectations for continued strong incomes. Furthermore, confidence in income growth is strongest among higher-income families, who generate a disproportionate share of overall consumption. That said, such confidence will wane if labor markets weaken enough to influence consumers’ outlook over their own incomes — which would in turn lower their willingness to spend.