U.S. consumer sentiment improved this month but remains subdued, the University of Michigan reports

U.S. consumer sentiment showed modest improvement in December, though Americans remain broadly pessimistic about economic conditions amid persistent inflation concerns, according to new data released Friday.

The University of Michigan’s preliminary consumer sentiment index rose to 53.3 in early December, up from November’s final reading of 51. While exceeding economists’ forecast of 52, the figure remains significantly below January’s reading of 71.7, highlighting the substantial deterioration in consumer confidence throughout 2024.

“The overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices,” said Joanne Hsu, director of the Michigan economic surveys.

The report revealed a mixed picture of consumer attitudes. Americans’ assessment of current economic conditions declined slightly, suggesting ongoing struggles with day-to-day financial pressures. However, their outlook for future economic prospects showed modest improvement, offering a glimmer of hope amid the generally downbeat sentiment.

Inflation expectations for the year ahead dropped to 4.1% from November’s 4.5%, marking the lowest level since January when Donald Trump began his second term as president. The decline in expected inflation comes despite Trump’s implementation of sweeping import tariffs that economists have warned could drive up consumer prices.

Since January, the Trump administration has dramatically increased tariffs on imported goods, raising the average U.S. tariff rate from 2.4% to 16.8% by November—the highest level since 1935, according to calculations by Yale University’s Budget Lab. Economic experts have consistently cautioned that these tariffs are initially paid by companies importing goods, who typically pass those costs on to consumers through higher prices.

The administration has recently negotiated agreements with major trading partners including the European Union and Japan, reducing some tariffs from the exceptionally high levels threatened earlier in the year. However, the overall tariff burden remains historically elevated.

The modest improvement in consumer sentiment comes against a backdrop of stubborn inflation that continues to exceed the Federal Reserve’s 2% target, despite falling from the four-decade highs reached in mid-2022. The Fed has kept interest rates at elevated levels to combat inflation, though it began cutting rates in September as price pressures showed signs of easing.

Consumer sentiment is closely watched as a potential indicator of spending patterns, which drive roughly 70% of U.S. economic activity. The persistently gloomy outlook suggests Americans remain cautious about their financial situation, which could impact retail sales during the crucial holiday shopping season.

The Michigan survey results align with other economic indicators showing an economy that has remained resilient despite headwinds, but with consumers feeling the strain of elevated prices on everyday goods and services. Particularly affected are lower and middle-income households, who typically spend a larger proportion of their income on necessities like food, housing, and transportation—categories that have seen significant price increases over the past three years.

While financial markets have shown strength in recent months, buoyed by expectations of continued Fed rate cuts in 2025, the disconnect between Wall Street optimism and Main Street caution remains pronounced. This divergence underscores how economic recovery has been experienced unevenly across different segments of American society.

The final December consumer sentiment reading will be released later this month, providing a more complete picture of Americans’ economic outlook as they close out 2024.