Defying Layoffs and Hotter-than-Expected Inflation, Consumer Sentiment Rises for Third Straight Month

Despite a string of high-profile layoff announcements from companies like UPS, Macy’s, Google, Cisco, Snapchat, and Instacart and hotter-than-expected levels of inflation figures, consumers are maintaining their sense of optimism. 

Consumer sentiment in February rose for the third-straight month. Preliminary results for the University of Michigan index ticked up slightly this month to 79.6, from 79.0 in January. That marks the highest measure of the gauge since July 2021 and a 30 percent increase since this past November, but is slightly below what economists had expected. In a Bloomberg survey of economists, the median estimate was 80. 

While the monthly increase was not large, this incremental gain is further evidence that the last two months of positive survey data, which showed consumers feeling more upbeat than they have in two years, is no fluke. That’s according to University of Michigan associate professor Joanne Hsu, who serves as director of the surveys of consumers.

“The fact that sentiment lost no ground this month suggests that consumers continue to feel more assured about the economy,” said Hsu in a statement with the release. She added that the results confirmed the considerable improvements in December and January.

The report also contained another historic brightspot for entrepreneurs. The index measuring consumers’ expectations for business conditions over the next five years rose 5 percent in February, notching its highest reading since December 2020. 

The index measuring consumers’ assessment of current conditions decreased in February to 81.5, down slightly from 81.9 last month. The gauge of consumer expectations for the future rose 1.7 percent this month, increasing from 77.1 in January to 78.4 in February. Over the past twelve months, the expectations index has climbed more than 21 percent. While consumer moods continue to improve, the overall sentiment index is still about 6 percent below its historical average.

Along party lines, the mood among Republicans improved the most with consumer sentiment rising from 56.3 in January to 65 in February. Sentiment among Independents edged up from 74.6 to 76.6, while Democrats felt a bit more sour in February with sentiment falling from 101.7 to 98.4 

While economists caution that consumers are not the best forecasters of inflation, short-run inflation expectations fell for the second-straight month and have settled within the pre-pandemic range of 2.3 to 3 percent. Long-run inflation expectations held steady for the third consecutive month at 2.9 percent.