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 Monitoring trends for over 75 years

Preliminary results from the January 2025 survey  January 10, 2025
Joanne Hsu, PhD, Director
Consumer sentiment was essentially unchanged in January, inching down
less than one index point from December, well within the margin of error.
Assessments of personal finances improved about 5%, while the economic
outlook fell back 7% for the short run and 5% for the long r un. January’s
divergence in views of the present and the future reflects easing concerns
over the current cost of living this month, but surging worries over the future
path of inflation. Overall, this month’s deterioration in the expectations index
was se en acro ss political affiliation s, including decline s of about 3% for
Independents and 1.5% for Republicans.
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 3.3% this month. This is only the third time in the last four years that long-run expectations have
exhibited such a large one -month change. For both the short and long run , inflation expectations rose across multiple
demographic groups, with particularly strong increases among lower -income co nsumers and Independents. Note that
inflation uncertainty—as estimated using the interquartile range in inflation expectations —has climbed considerably over
the past year, though it remains well below levels seen in the 1970s (see chart).  October 2024’s special  report provides
additional context for understanding the path of long-run inflation expectations over the last seven years.
Inflation expectations are being shaped by beliefs about future policy. The share of consumers worried about the prospect
of tariff hikes continues to rise. Nearly one-third of consumers spontaneously mentioned tariffs, up from 24% in December
and less than 2% prior to the election. These consumers generally report that tariff hikes will pass through to consumers in
the form of higher prices, thus pushing up their inflation expectations.
Concerningly, recent data show an emergence of inflationary psychology —motives for buying-in-advance to avoid future
price increases, the proliferation of which would generate further momentum for inf lation. Like in December, 22% of
consumers this month reported that purchasing durables now would enable buyers to avoid future price hikes, the highest
since 1990. That said, these buy-in-advance price rationales were far more prevalent in the 1970s, averaging 41% in 1978.
Expectations for the future weakened on other dimensions as well. Half of consumers expect unemployment rates to rise in
the year ahead, up from 40% last month and 31% a year ago. This month’s worsening was concentrated among Independents
and Republicans. Consumers’ expectations over their own income growth also fell from last month in both nominal and real
terms. Only one-third of consumers expect interest rates to fall over the next year, down from 41% in December and falling
for the fourth straight month. All told, consumers perceive numerous sources of downside risk to the economy.
Despite their worries for the future, consumers are fully aware that current inflation has slowed over the past two or so
years. In fact, the 4% increase in Current Conditions this month was largely supported by softening worries over current
prices. About 32% of consumers spontaneously cited high prices as weighing down their personal finances, down from 47%
in August 2024 and the lowest seen since February 2022. For buying conditions for large purchases, spontaneous mentions
of high prices have fallen over the last five months for durable goods and are the lowest since May 2021 for vehicles.
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan
2024 2024 2024 2024 2024 2024 2024 2024 2024 2024 2024 2024 Prelim
Index of Consumer Sentiment 79.0 76.9 79.4 77.2 69.1 68.2 66.4 67.9 70.1 70.5 71.8 74.0 73.2
Current Economic Conditions 81.9 79.4 82.5 79.0 69.6 65.9 62.7 61.3 63.3 64.9 63.9 75.1 77.9
Index of Consumer Expectations 77.1 75.2 77.4 76.0 68.8 69.6 68.8 72.1 74.4 74.1 76.9 73.3 70.2
Index Components
Personal Finances - Current 100 98 104 95 91 81 79 79 80 81 82 85 89
Personal Finances - Expected 122 116 122 116 111 106 105 108 111 110 116 111 110
Economic Outlook - 12 Months 93 93 95 92 79 84 86 88 93 92 97 88 82
Economic Outlook - 5 Years 94 92 94 96 84 88 84 92 94 95 96 94 89
Buying Conditions - Durables 111 106 109 109 88 88 81 78 82 85 82 108 112
0
2
4
6
8
10
1977 1982 1987 1992 1997 2002 2007 2012 2017 2022
Uncertainty - Year-Ahead Inflation Expectations
Uncertainty - 5-10 Year Inflation Expectations
Consumers Express Rising Uncertainty Over Path of Inflation
Uncertainty Estimated by 75th Percentile – 25th Percentile of Expectations
3-Month Moving Averages
University of Michigan, January 10, 2025