Consumer sentiment builds momentum as inflation continues to slow

Consumer sentiment rose to its highest reading since May 2024, increasing for the second straight month and lifting more than 3% above August, according to the University of Michigan's Survey of Consumers.

This increase was seen across all education groups and political affiliations.

[Link]Joanne Hsu

The expectations index for September is now 13% above a year ago and reflects greater optimism across a broad swath of the population. While sentiment remains below its historical average in part due to frustration over high prices, consumers are fully aware that inflation has continued to slow, said U-M economist Joanne Hsu, director of the surveys.

Sentiment appears to be building some momentum as consumers' expectations for the economy brighten, she said.

"While there are some signs that consumers perceive a slight deterioration in labor market conditions, they do not expect substantial effects on the economy," Hsu said. "Consumers recognize that labor markets have been relatively strong, and they expect that the Fed will step in to prevent unemployment rates from spinning out of control.

"In fact, consumer expectations for the economy have been on an upswing, as they expect interest rates to continue falling in the year ahead."

Consumers aware of slowdown in inflation

Although high prices remain the most commonly cited factor influencing consumers' personal finances, consumers fully recognize that inflation has softened over the past two years, Hsu said. Consumers voiced fewer concerns this month over high prices for durables, vehicles and homes, as well as their personal finances.

When asked whether unemployment or inflation will pose the more serious problem for consumers in the next year or so, about 42% of consumers chose inflation, down from 53% just four months ago. Furthermore, consumers expect inflation to continue slowing over the course of the next year, Hsu said.

Future expectations lift on most dimensions

The year-ahead economic outlook has risen for four consecutive months, with September's gains reflected across age, income and education groups. A year ago, more than half of consumers expected bad times for the economy in the next year; now, that share is 28%.

Looking over the next 5-10 years, consumers' expectations for the economy have risen for the long run outlook as well, reaching its highest level since April 2024 and lifting 4% above its historical average. Unemployment expectations also became more favorable in September, with an increasing share expecting overall unemployment to fall during the next year.

Consumer Sentiment Index

The Consumer Sentiment Index rose to 70.1 in the September 2024 survey, up from 67.9 in August and above last September's 67.8. The Current Index rose to 63.3, up from 61.3 in August and below last September's 71.1. The Expectations Index rose to 74.4, up from 72.1 in August and above last September's 65.7.

About the surveys

The Surveys of Consumers is a rotating panel survey at the University of Michigan Institute for Social Research. It is based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by phone. The minimum monthly change required for significance at the 95% level in the Sentiment Index is 4.8 points; for the Current and Expectations Index, the minimum is 6 points.

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