U.S. Consumer Sentiment Inches Up in December but Stays Near Historic Lows

The mood among American consumers showed a modest improvement in early December, yet overall confidence remains well below levels recorded at the start of the year, according to preliminary data from the University of Michigan.

The university’s consumer sentiment index rose to 53.3 in the first half of the month, compared with a final reading of 51.0 in November. The figure surpassed the 52.0 consensus forecast compiled by private‐sector economists but stood far beneath the 71.7 registered in January. The survey captures how households feel about current economic conditions and what they anticipate over the coming year.

Within the survey, the subindex that tracks assessments of present conditions slipped slightly, indicating that respondents view the current economic environment as largely unchanged or marginally worse than in the prior month. In contrast, the expectations component gained modest ground, suggesting that some households see conditions improving over the next twelve months.

Expectations for year-ahead inflation declined for a second consecutive month, falling to 4.1% from 4.5% in November. That marks the lowest one-year inflation outlook since January, when President Donald Trump took office for a second term and initiated a broad set of import tariffs. Many economists maintain that companies paying those levies often attempt to recoup the added costs by raising prices, potentially feeding inflation.

Tariff policy remains a notable backdrop for consumer views. Although the administration has negotiated agreements with major trading partners—including the European Union and Japan—that scaled back some proposed duties, the average U.S. tariff rate has nonetheless climbed sharply. Data compiled by Yale University’s Budget Lab indicate that the rate reached 16.8% last month, up from 2.4% in January and the highest level since 1935.

Survey director Joanne Hsu said respondents continue to emphasize the burden of elevated prices despite the recent easing in headline inflation. Overall consumer price growth has moderated from the peaks seen in mid-2022 but persists above the Federal Reserve’s 2% target. As a result, many households remain cautious about discretionary spending and wary of economic risks heading into 2026.

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The sentiment index is closely watched because consumer spending accounts for roughly two-thirds of U.S. economic activity. While a reading above 50 signals that optimism slightly outweighs pessimism, current levels are historically low. Outside the initial months of the COVID-19 pandemic, the index has rarely stayed this subdued for an extended period.

Economists analyzing the December report noted that the improvement in inflation expectations is a constructive sign for the Federal Reserve, which has raised interest rates aggressively over the past three years to curb price pressures. Continued progress on inflation could allow policymakers to pause or slow future rate increases, although officials have said they need sustained evidence of moderation before changing course. The Federal Open Market Committee meets later this month for its final policy decision of the year.

For historical context, the University of Michigan index averaged near 90 in the decade before the pandemic and reached as high as 112.0 in early 2000. The current figure of 53.3 underscores the gap between today’s sentiment and longer-term norms. Full survey results will be updated when the final December reading is released later this month. More details on the methodology can be found on the University of Michigan Survey Research Center website.

Crédito da imagem: Associated Press