US consumer sentiment rises in January, though worries over prices, jobs persist

US consumer sentiment improved modestly in January, showing gains across demographic groups even as Americans remained uneasy about high prices, job prospects and the broader economic outlook, according to a closely watched survey released on Friday.

The University of Michigan’s Consumer Sentiment Index rose to a final reading of 56.4 in January, up from a preliminary estimate of 54.0 and from 52.9 in December.

Economists polled by Reuters had expected the figure to remain unrevised from the earlier estimate.

While the increase marks a step forward, sentiment remains deeply depressed by historical standards.

One of the sharpest sentiment slumps in decades

The recent decline in confidence ranks among the most severe in the survey’s history, which stretches back to the 1950s.

Over the past decade, comparable drops have occurred only during the peak of post-pandemic inflation in 2022 and after President Donald Trump announced sweeping global tariffs last spring.

Even with January’s improvement, national sentiment remains more than 20% below its level a year ago.

“While the overall improvement was small, it was broad-based, seen across the income distribution, educational attainment, older and younger consumers, and Republicans and Democrats alike,” Joanne Hsu, the director of the Surveys of Consumers, said in a statement.

However, national sentiment remains more than 20% below a year ago, as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets.

Inflation expectations ease, but frustration remains

The survey showed a modest easing in inflation expectations.

Consumers now expect prices to rise 4.0% over the next year, down from a preliminary reading of 4.2% and the lowest level since January 2025.

Expectations for inflation over the next five years slipped to 3.3% from an initial estimate of 3.4%, though they remain slightly above last month’s reading of 3.2%.

While inflation has slowed significantly over the past three years, it is still above its long-run trend.

Many households remain frustrated by the cumulative impact of past price increases, even as they express confidence that inflation will not surge again.

That confidence is an important signal for policymakers at the Federal Reserve, who worry that entrenched fears about rising prices could influence spending and wage-setting behavior, potentially fueling inflation in a self-reinforcing cycle.

Spending holds up despite sour mood

Despite widespread dissatisfaction, consumers have continued to spend.

Data released by the Commerce Department on Thursday showed solid gains in consumer spending in October and November, which many economists believe supported a strong finish for economic growth in the final quarter of 2025.

The resilience in spending suggests that while households feel strained, they have not yet pulled back sharply.

This divergence between sentiment and actual behaviour has been a recurring feature of the US economy since the pandemic.

Tariffs loom as a potential risk

The Michigan survey also indicated that consumers are not yet linking international developments to their assessment of the domestic economy.

Interviews for the January index concluded on Monday, shortly after President Trump threatened to impose tariffs on eight European countries as part of a push to acquire Greenland.

Those tensions appeared to ease midweek after Trump said he had reached a framework for a deal with NATO Secretary General Mark Rutte.

Hsu said that brief episodes of tariff rhetoric are unlikely to shift consumer views, but prolonged uncertainty could have an impact.

She warned that a renewed escalation in trade tensions, similar to last spring’s tariff disputes, would likely weigh on sentiment just as consumers have begun to ease their concerns.

The post US consumer sentiment rises in January, though worries over prices, jobs persist appeared first on Invezz