Consumer Sentiment Up As Year Ends With Inflation Falling Quicker Than Expected

WASHINGTON, DC (IANS) – Consumer sentiment has risen in the US with increased spending during Christmas as the fall of inflation faster than expected is vastly changing the mood to one of positivity.

The consumer sentiment index soared 14 percent in December – even better than the earlier estimate a couple of weeks ago – as consumers reacted to the latest data on inflation that shows it making substantial progress toward the Federal Reserve’s 2 percent annual target, media reports said.

Inflation has rapidly fallen from 3.7 percent recorded in earlier months to 2.6 percent, over a 1 percent fall. And that’s encouraged spending atop the high job numbers added and unemployment numbers declining as per statistics released by the US Bureau of Labor.

Economists estimated that festive buying touched $15 billion, and on Cyber day, it clocked $1 million a minute in the closing hours of the sales.

“These trends are rooted in substantial improvements in how consumers view the trajectory of inflation,” survey director Joanne Hsu said of the index reaching 69.7 and reversing four months of declines.

“All five index components rose this month, which has only occurred in 10% of readings since 1978,” Hsu said adding: “Expected business conditions surged over 25 percent for both the short and long run.”

All age, income, education, geographic, and political identification groups saw gains in sentiment this month. The index is now just shy of the midpoint between the pre-pandemic reading and the historic low reached in June 2022, media reports said.

The latest release of inflation figures follows Friday’s earlier reading that showed prices actually dipped by 0.1 percent in November and fell to an annual rate of 2.6 percent, down from October’s 2.9 percent pace. It’s the latest data showing inflation is receding in line with the Fed’s desires.

The Federal Reserves had kept inflation on a tight leash through its unabated 52-week rise of interest rates at periodic intervals that hit the stock markets to tumble but yields on US treasury bonds – long-term paper of 10 years gave good returns to investors to shift. Stocks have shown an upward trend in December.

“This was the perfect soft-landing report,” said Richard de Chazal, macro analyst at William Blair. “It shows a US consumer that continues to hold up quite well, supported by the strong labor market and further solid wage gains. In addition, inflation is well on its way to 2 per cent seemingly without stalling at the last mile as has been feared. While it is too early to declare victory just yet, it is consistent with market expectations for an accelerated schedule of rate cuts.”

Though the Feds did not announce any rate cut at its last meeting in December this year, it is expected to hold the rates steady at the same level without cuts until June of 2024, investors feel.

On Thursday, gross domestic product for the third quarter came in at 4.9 percent, a revision from earlier estimates of 5.2 percent but still very high by recent comparisons. The economy is ending 2023 far better than anyone expected at the start of the year. Although many economists and the Fed see the economy slowing next year, the consensus view appears to favor no recession or, if there is one, a mild downturn.

Falling gasoline prices, a strong labor market, and income gains are leaving consumers in a better frame of mind than earlier this year, a good omen entering into 2024, the US News and World Reports said reflecting on the general consumer mood which was ending on a high in the year-end.

“Inflation is normalizing faster than expected,” said Damian McIntyre, vice president, portfolio manager, and senior quantitative analyst at Federated Hermes. “The job market is strong and the economy continues to grow at a steady rate. This increases the odds of a soft landing.”

If there was one sour note, it was that new home sales fell to 590,000, a 12.2 percent drop from October’s revised 672,000 pace. However, the number was 1.4 percent above a year ago. Prices, meanwhile, rose to $434,700 from $409,300 a month ago. However, prices tend to fluctuate based on the mix of homes that are sold in a given month, reports said.