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First Cut: Final Consumer Sentiment Index for December remains at second-highest level for 2019

The final University of Michigan Consumer Sentiment Index for December was essentially unrevised at 99.3 (previously 99.2) and the second highest of 2019 after the peak of 100.0 in May. It continued to reflect giddy optimism in the present conditions index at 115.5 (previously 115.2) that can largely be attributed to the strength in the labor market with an assist from expectations that interest rates will remain favorable. The index for six months from now was unrevised at 88.9 as the near future does not look too bad either.

Consumers are more focused on jobs and incomes and are tuning out the political situation as much as possible. Should the economy slow and/or the job market begin to loosen up, that could change.

Inflation expectations were revised lower, probably due to declines in gasoline prices and a sense that other costs are going to be more-or-stable in the future. The 1-year inflation measure was revised down a tenth to 2.3% and just above record lows of 2.2%, the most recent of which was in December 2016. The 5-year measure was also revised down a tenth to 2.2%, a new series low. The declines will put Fed policymakers on the alert, but probably not enough to suggest that short-term rates will not remain on hold for now. It is only one month’s worth of data and it would take further declines to suggest that inflation expectations have lost their anchor.


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