Consumer sentiment rises above expectations in January but remains below last year's level

Consumer sentiment ticked higher in early January despite lingering concerns about inflation and a weak labor market, according to the latest release from the University of Michigan's Surveys of Consumers.

Michigan's Consumer Sentiment Index rose to 54 in January's preliminary reading from a final reading of 52.9 in December. 

That was a larger increase than what was expected by economists polled by LSEG, who anticipated the January figure would come in at 53.5. However, January's reading of 54 was significantly below the 71.7 reading a year ago in January 2025.

"Improvements in January were seen among lower-income consumers, while sentiment fell for those with higher incomes," Surveys of Consumers Director Joanne Hsu noted.

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The report found that year-ahead inflation expectations were steady at 4.2% to start January, which is the lowest reading since January 2025 but well above that month's 3.3% inflation expectations.

Consumers' long-run inflation expectations rose slightly from 3.2% in December to 3.4% this month. By comparison, readings ranged between 2.8% and 3.2% in 2024, and were below 2.8% throughout 2019 and 2020.

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"All told, while consumers perceived some modest improvement in the economy over the past two months, their sentiment remains nearly 25% below last January's reading," Hsu added. 

"They continue to be focused primarily on kitchen table issues, like high prices and softening labor markets. Although consumers' worries about tariffs appear to be gradually receding, they remain guarded about the overall strength of business conditions and labor markets," she explained.

Hsu noted that over 90% of the surveys for the release were collected before the capture of Venezuelan leader Nicolás Maduro in a U.S. special forces raid on drug and weapons trafficking charges.

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The University of Michigan's consumer sentiment report comes as the Labor Department released the closely-watched December jobs report showing the U.S. economy added 50,000 jobs last month.

The modest jobs growth closed out a turbulent year for the labor market, which faced headwinds from shifts in immigration policies under the Trump administration reducing the supply of labor. 

Businesses also faced elevated uncertainty amid the administration's tariff policies, which underwent several changes following the president's "Liberation Day" tariffs announced in April.

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EY-Parthenon senior economist Lydia Boussour wrote in a note that, "In 2025, the economy added just 584,000 jobs – a stark slowdown compared to the 2 million gained in 2024 and the weakest annual increase outside a recession since 2003."