Consumer sentiment edges higher as economic growth accelerates and inflation fades

A measure of consumer sentiment ticked higher this month, after soaring in December and January, underscoring that Americans are starting to feel better about the economy after several years of gloom.

The University of Michigan’s consumer sentiment index, released Friday, ticked up to 79.6 in February, from 79 in January. The small gain followed two months of sharp increases that were the largest in more than 30 years. How Americans feel could impact the presidential race this year, which will likely focus heavily on President Joe Biden’s economic record.

Still, consumer sentiment remains 6% below its long-run average after the worst spike in inflation in four decades pushed up the cost of groceries, rent, gas, and other necessities, frustrating many consumers.

“The fact that sentiment lost no ground this month suggests that consumers continue to feel more assured about the economy, confirming the considerable improvements in December and January,” said Joanne Hsu, director of the consumer survey. “Consumers continued to express confidence that the slowdown in inflation and strength in labor markets would continue.”

Improving consumer confidence can often lead to greater spending, which can support economic growth. Since the pandemic, however, consumer spending has been mostly healthy even when measures of sentiment were quite low.

Lael Brainard, a top White House economic adviser, in a statement Friday credited the brightening outlook to “the increase in real wages, wealth, business creation, and job opportunities” that have occurred during Biden’s term. “Consumer expectations for business conditions over the next five years rose to the highest level since December 2020,” she added.

In recent weeks, most economic data has been positive, and has indicated that the economy is still growing, employers are hiring, and inflation is coming down. Growth reached 3.3% in the final three months of last year, much better than economists had forecast. Consumer prices rose just 2.6% in December compared with a year ago, according to the Federal Reserve’s preferred inflation measure, though the better-known consumer price index picked up a bit in January.

There has been a clear partisan gap in how Democrats and Republicans perceive the economy, and it has intensified in the past decade. In February, sentiment among Democrats was 34 points higher than for Republicans.

Yet the small gain in sentiment this month came from Republicans, whose confidence measure rose to 65 from 56.3. There was a tiny gain among independents, from 74.6 to 76.6, and a drop among Democrats, to 98.4 from 101.7.

Other measures of confidence have also shown clear improvement this winter. A daily survey by Morning Consult has increased 7% since the end of November.

And a quarterly measure of CEO confidence by the Conference Board reached 53 in the first three months of this year, the first time it has topped 50 — when more CEOs are optimistic than pessimistic — in two years.

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