Consumer sentiment rises to 31-month high on slowing inflation and strong job market

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The numbers: Consumer sentiment crept up in early February to a 31-month high, fueled by slowing inflation and a strong job market.

The first of two readings of the sentiment survey this month rose to 79.6 from 79.0 in January, the University of Michigan said Friday. That’s the highest reading since July 2021.

Americans are more confident inflation will continue to slow and that jobs will remain easy to find. A rising stock market has also buoyed confidence.

The consumer-sentiment survey reveals how Americans feel about their own finances as well as the broader economy.

Sentiment is still well below prepandemic levels of around 100, however.

Key details: A gauge that measures what consumers think about the current state of the economy fell slightly, to 81.5 from 81.9.

A measurement of expectations for the next six months climbed to 78.4 from 77.1 in January. That’s also the highest level since July 2021.

Americans think inflation will average 3% in the next 12 months, up a tick from January. The current rate of inflation is 3.1%, based on the consumer-price index.

Big picture: The economy is growing at an above-average speed. Unemployment is extremely low at 3.7%. Gas is cheaper. Stocks are rising. And inflation is slowing, though not as fast as investors had hoped. The Federal Reserve is also primed to cut interest rates later this year.

That helps explain the recent surge in consumer sentiment.

Still, it may take a while for confidence to return to prepandemic levels in light of the steep increase in prices over the last four years.

Looking ahead: “Consumers continued to express confidence that the slowdown in inflation and strength in labor markets would continue,” survey director Joanne Hsu said. “Five-year expectations for business conditions rose 5% to its highest reading since December 2020.”

Market reaction: The Dow Jones Industrial Average
DJIA,
+0.23%
and S&P 500
SPX,
+0.80%
fell in Friday trading after a disappointing inflation reading in the producer-price index.

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