Consumer sentiment fell for the first time in six months, according to the final January report for the Michigan Consumer Sentiment Index, coming in at 71.1. The index dropped 2.9 points (-3.9%) from December's final reading to 74.0 and is down 10.0% compared to one year ago. The latest reading was lower than the 73.2 forecast.
The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the U.S. with regards to the economy, personal finances, business conditions, and buying conditions, conducted by the University of Michigan. There are two reports released each month; a preliminary report released mid-month and a final report released at the end of the month.
Joanne Hsu, the director of surveys, made the following comments:
Consumer sentiment fell for the first time in six months, edging down 4% from December. While assessments of personal finances inched up for the fifth consecutive month, all other index components pulled back. Indeed, sentiment declines were broad based and seen across incomes, wealth, and age groups. Buying conditions for durables softened but remained about 30% better than six months ago amid persistent views that purchasing now would avoid future price increases. Despite reporting stronger incomes this month, concerns about unemployment rose; about 47% of consumers expect unemployment to rise in the year ahead, the highest since the pandemic recession.
See the chart below for a long-term perspective on this widely watched indicator. We've highlighted the value of the index at the start of each recession and also included a callout to the most recent 12 months. The current level of 71.1 is below the index's level at the start of 5 of the 6 recessions since the index's inception.
To put today's report into the larger historical context, since the beginning of our data set (1978), consumer sentiment is 16.0% below its average reading (arithmetic mean) of 84.7 and 14.9% below its geometric mean of 83.6. The current index level is at the 19th percentile of the 565 monthly data points in this series.
This indicator is somewhat volatile, with a 3.1 point absolute average monthly change. The latest data point saw a 2.9 point decrease from the previous month. For a visual sense of the volatility, here is a chart with the monthly data and a three-month moving average. The bottom half of the chart shows real GDP to help us evaluate the correlation between the Michigan Consumer Sentiment Index and the broader economy.
Each month, the survey results highlight sentiment within each political party. To provide additional context, I’ve included a chart that shows the presidencies over our timeframe. As you can see, sentiment has fluctuated both positively and negatively under both Republican and Democratic administrations.
January’s data closed on Inauguration Day, and consumers of all political leanings will continue to refine their views as Trump’s policies are clarified and implemented.
Michigan Consumer Sentiment Index: Components
The Michigan Consumer Sentiment Index is made up of two indexes: the Current Economic Conditions Index (CECI) and the Consumer Expectations Index (CEI). As you'd expect, the former assess consumers' views of their current financial situation and the overall economy while the latter evaluates consumers' future outlook. In January, the CECI was at 74.0, a 1.5% decline from the previous month and a 9.6% decline from one year ago. Additionally, the CEI was at 69.3, a 5.5% decline from the previous month and a 10.1% decline from one year ago.
Michigan Consumer Sentiment Index: Inflation Expectations
Year-ahead inflation expectations soared from 2.8% last month to 3.3% this month. The current reading is the highest since May 2024 and is above the 2.3-3.0% range seen in the two years prior to the pandemic. Long-run inflation expectations rose from 3.0% last month to 3.2% this month, the same reading seen in November 2024. For both the short and long run, inflation expectations rose across income and educational groups. Concerns over the future trajectory of inflation were visible throughout the interviews and were tied to beliefs about anticipated policies like tariffs. Consumers continued to spontaneously express motives for buying-in-advance to avoid future price increases, and robust auto and retail sales data suggest that consumers are indeed acting on these views.
Other Sentiment Indicators
For an additional perspective on consumer attitudes, see the most recent Conference Board's Consumer Confidence Index. Both indexes gauge consumer attitudes toward the current and future strength of the economy. However, the Consumer Confidence Index is more influenced by employment and labor market conditions while the Michigan Sentiment Index is more focused on household finances and the impact of inflation.
The Conference Board index is the more volatile of the two, but the broad pattern and general trends have been remarkably similar to the Michigan index.
And finally, the prevailing mood of the Michigan survey is also similar to the mood of small business owners, as captured by the NFIB business optimism Index (monthly update here).
The next update to this report will be published on February 7th.
ETFs associated with sentiment include: Consumer Discretionary Select Sector SPDR Fund (XLY).
Read more updates by Jen Nash
