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Jill On Money: Consumers and investors feel better

Jill Schlesinger on

A funny thing happened on the way to 2024: Consumers feel better!

The University of Michigan consumer sentiment index jumped 13 percent in January from December to reach its highest level since July 2021.

The reading follows a sharp increase in December and cumulatively sentiment has climbed 29%, the largest two-month increase since 1991.

The positive trend, which persisted across different regions, incomes, ages, and education attainment, is likely due to the same culprit that drove sentiment into a ditch: inflation.

Joanne Hsu, director of consumer surveys at the University of Michigan, said the gains were “supported by confidence that inflation has turned a corner,” underscored by the survey’s one-year-ahead inflation measure dropping to 2.9%, its lowest since December 2020.

Dropping below 3% isn’t just a round number milestone: It means that the year-ahead measure is within the 2.3 - 3.0% range seen in the two years prior to the pandemic.

 

With the inflationary fever breaking, sentiment is almost 60% higher than the all-time low notched in June 2022 (when the Consumer Price Index peaked at 9.1%), and is now just 7% shy of the historical average since 1978.

The improvement may partially explain why December retail sales were better than expected. Strong consumer spending, a revival in manufacturing investment and increased state and local government purchases helped power the overall economy last year.

The good news has spilled into the stock market, where you may have missed another milestone: The S&P 500 stock market index reached a new closing high of 4,839.81 on January 19, besting the prior closing record of 4796.56, set on January 3, 2022. The index went 512 trading days without a new record, the longest stretch since a fallow period of 1,375-sessions that ended in March 2013.

News about stock movements impacts more people than you might think.

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