Consumers are optimistic about today’s economy, but some consumers worry about the future

The Key Takeaways

• Consumer sentiment increased to 74.0 at the preliminary December reading for the Michigan Consumer Sentiment Index. That’s up from the previous month, and higher than the economist’s projections.
• The current state of the economy was a positive indicator, as were inflation expectations. However, consumer expectations declined.
• Politics may be playing a part in this shift of sentiment. Republicans, Independents, and Democrats are all showing signs of optimism. Democrats, however, have concerns about higher inflation expectations.

The consumer sentiment index in December rose for the fifth month running to its highest level since April. The data showed, however, that there are some who may also be worried about the economic changes which could occur next year.

In the preliminary December reading of the Michigan Consumer Sentiment Index, the index increased from 71.8 to 74.0. Dow Jones Newswires’ and The Wall Street Journal’s economists expected a smaller increase, to 72.0.

This increase is attributed to a surge in the current economic sentiment, which reached its highest level in eight months. Consumer sentiment, which is a measure of future expectations, fell slightly as consumers became more concerned about inflation.

“A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%,” Joanne Hsu, the director of surveying at Joanne Hsu. “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.”

Tariff worries increase inflation expectations

Consumers expect rising price pressure, according to the survey. The survey showed that consumers expect inflation to increase in the next year. Federal Reserve officials use consumer inflation expectations to determine interest rate decisions. 

The survey showed, according to economists that Democrats were expecting inflation to go up under the weight of Donald Trump’s proposed tariffs. Republicans on the other hand expected prices to drop. It wasn’t only Republicans that were happier about the state of the economy. A survey revealed a nine point improvement in the consumer confidence among independents.

“There is evidence consumers received a jolt to confidence from the election outcome, namely those identifying as Republican, but consumers are still on average worried about the economy, most notably inflation, and remain cautious on the future,” Wells Fargo economists Shannon Seery Grein, and Jeremiah Kohl have written a piece.

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