Consumers turn merrier about the economy as Christmas beckons

Consumer sentiment improved in December, led by more optimistic expectations among those at the lower end of the income scale, the University of Michigan reported on Thursday.

The index of consumer sentiment rose to 70.6 from 67.4 in November, with the current expectations index rising slightly from 73.6 to 74.2. However, the expectations index rose 7.6% to 68.3.

“The uptick was primarily due to significant gains among households with incomes in the bottom third of the distribution,” Richard Curtin, the chief economist for the survey, said in a statement. “Indeed, the bottom third expected their incomes to rise during the year ahead by 2.8%, up from 1.8% last December, and the highest level since 2.9% was recorded in 1999.”

Curtin added that “there have only been five times in the past half century that income expectations among low income households have exceeded the December 2021 level.”

An announced increase in Social Security payments of 5.9% for 2022 and wage gains that are averaging 5% annually, especially among younger and low-income workers, were behind the increase in expectations.

However, Curtin noted that “too few interviews were conducted to capture the impact of the rapid spread of the Omicron variant in the U.S.”

“Confidence and spending are likely to be depressed in January, but it is too early to know the eventual impact of Omicron on the economy,” he added.

The Michigan survey follows the release Wednesday of the Conference Board’s Consumer Confidence Index for November, which rose to 115.8, up from a revised 111.9 in November. The Present Situation Index – which measures consumers’ view of the current economy – edged down slightly to 144.1 from 144.4 last month. The Expectations Index – a forward-looking view of how consumers view the short-term economic outlook – rose to 96.9 from 90.2.

The twin readings, along with other economic data released this week, suggests consumers are entering 2022 with improved feelings about the economy. But omicron and a change in policy from the Federal Reserve toward battling inflation more aggressively could undermine those sentiments.

Still, the story of 2021 is that the American consumer – who drives more than two-thirds of the economy – is proving to be resilient in the face of unprecedented challenges brought on by the pandemic and rising prices.