Consumer Sentiment: Final Results for December 2021

The University of Michigan's Index of Consumer Sentiment (ICS) -  Final  Results for December 2021 was released today:

Predicted: 70.5

• Actual: 70.6

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• Change from Previous Month: +4.748% (+3.2 points)

• Change from 12 Months Previous: -12.515% (-10.1 points)

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• Final ICS Reading for November 2021: 67.4
  
  
• Final ICS Reading for December 2020: 80.7

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From today's report:

"...The Sentiment Index improved in December. The uptick was primarily due to significant gains among households with incomes in the bottom third of the distribution. 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. There have only been five times in the past half century that income expectations among low income households have exceeded the December 2021 level. The announced increase in Social Security payments of 5.9% in 2022 was partly responsible for the gain, and 5.0% increases in expected wage among the youngest workers. Importantly, 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.

Consumers' evaluations of their current finances remained unchanged at lower levels due to the erosion of their living standards from rising inflation. One-in-four households specifically cited the negative impact of inflation on their living standards. The partisan nature of consumer expectations has overwhelmed other economic correlates. Democrats anticipate much lower inflation rates than Republicans for the year ahead (3.0% vs. 6.8%) and over the longer term (2.3% vs. 4.4%). Moreover, three times as many Republicans as Democrats cited the negative impact on their finances from inflation (47% vs. 16%). Sharp differences in expected gains in nominal incomes were also found by partisanship, as Democrats anticipated much higher gains than Republicans (2.7% vs. 0.4%). Independents, who are least likely to be influenced by partisanship, equaled the median expected income response across partisan subgroups. This finding has been widely replicated across many other expectations, and indicates that partisan extremes generally offset and the sum is approximately equal the views of Independents..."

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The ICS is derived from the following five survey questions:

1. "We are interested in how people are getting along financially these days. Would you say that you (and your family living there) are better off or worse off financially than you were a year ago?"
   
   
   
2. "Now looking ahead, do you think that a year from now you (and your family living there) will be better off financially, or worse off, or just about the same as now?"
   
   
   
3. "Now turning to business conditions in the country as a whole, do you think that during the next twelve months we'll have good times financially, or bad times, or what?"
   
   
   
4. "Looking ahead, which would you say is more likely: that in the country as a whole we'll have continuous good times during the next five years or so, or that we will have periods of widespread unemployment or depression, or what?"
   
   
   
5. "About the big things people buy for their homes, such as furniture, a refrigerator, stove, television, and things like that. Generally speaking, do you think now is a good or bad time for people to buy major household items?"
   
   

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• Click here for more on how the ICS is calculated.

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The ICS uses a 1966 baseline, i.e. for 1966, the ICS = 100. So any number that is below the 1966 baseline of 100 means that the folks who were polled recently aren't as optimistic about the U.S. economy as those polled back in 1966.

The ICS is similar to the Consumer Confidence Index in that they both measure consumer attitudes and offer valuable insight into consumer spending.

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The "predicted" figure is what economists were expecting, while the "actual" is the true or real figure.

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• Click here to view the full University of Michigan report.

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