The University of Michigan's closely watched Consumer Sentiment Index surged to a seven-month high in December, reflecting improved current economic conditions while also signaling growing concerns over rising near-term inflation expectations.
Notably, nearly 25% of respondents-the highest proportion since this data series began in 2012-stated that now is a good time to make purchases, anticipating further price increases ahead.
"A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%. Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases," said University of Michigan's Surveys of Consumers Director Joanne Hsu.
December Consumer Sentiment Report: Key Highlights
- Preliminary estimates from the University of Michigan showed that the consumer sentiment index rose from 71.8 points in November to 74 points in December, marking a 3.1% monthly surge and surpassing economist estimates, as tracked by TradingEconomics, of 72.
- The sub-index for consumer expectations declined from 76.9 to 71.6 points, falling to a 4-month low.
- The sub-index for current conditions soared from 63.9 to 77.7, the highest since April.
- Year-ahead inflation expectations rose from 2.6% to 2.9%, the highest since July, and above the expected 2.7%.
- Long-term inflation expectations fell slightly, from 3.2% to 3.1%, as expected.
"The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December," Hsu wrote in the report.
"Democrats voiced concerns that anticipated policy changes, particularly tariff hikes, would lead to a resurgence in inflation. Republicans disagreed; they expect the next president will usher in an immense slowdown in inflation," she added.
Market Reactions
The U.S. dollar index - tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE: UUP) - rose by 0.3% after the December consumer sentiment report.
Both S&P 500 and the tech-heavy Nasdaq 100 indices were up by 0.4% and 0.7% by 10:15 a.m. in New York, while the Dow Jones held broadly steady.
Small caps, tracked by the iShares Russell 2000 ETF (NYSE: IWM), rose 0.4% higher.
Shorter-dated Treasury yields fell, with the 2-year yield down by 5 basis points. Following the latest jobs market data, investors hiked their rate-cut expectations, now assigning a 90% chance of a 25-basis-point rate ease.