Consumer sentiment rises as economic growth accelerates and inflation eases | Economy and business

A measure of consumer sentiment rose this month after rising sharply in December and January, underscoring that Americans are starting to feel better about the economy after several years of gloom.

The University of Michigan consumer sentiment index released Friday rose to 79.6 in February from 79 in January. The small increase was followed by two months of strong increases, the largest in more than 30 years. How Americans think could impact this year's presidential election, which is likely to be heavily focused on President Joe Biden's economic record.

Still, consumer sentiment remains 6% below its long-term average after the sharpest rise in inflation in four decades pushed up the cost of food, rent, gasoline and other essentials, frustrating many consumers.

“The fact that sentiment has not lost ground this month suggests that consumers continue to feel more confident about the economy, confirming the significant improvements in December and January,” said Joanne Hsu, head of consumer surveys. “Consumers remained confident that slowing inflation and strength in labor markets would continue.”

Improving consumer confidence can often lead to increased spending, which can support economic growth. However, since the pandemic, consumer spending has been mostly healthy, although sentiment levels have been quite low.

Lael Brainard, a top White House economic adviser, in a statement Friday attributed the brightening outlook to “the rise in real wages, wealth, business creation and job opportunities” that has occurred during Biden's term. “Consumer expectations for business conditions over the next five years have risen to their highest level since December 2020,” she added.

In recent weeks, most economic data has been positive, suggesting the economy is still growing, employers are hiring and inflation is falling. Growth reached 3.3% in the final three months of last year, much better than economists had forecast. According to the Federal Reserve's preferred measure of inflation, consumer prices rose just 2.6% in December from a year earlier, although the better-known consumer price index rose slightly in January.

There is clearly a partisan divide in how Democrats and Republicans perceive the economy, and it has only grown worse over the last decade. In February, sentiment among Democrats was 34 points higher than among Republicans.

However, the slight gain in sentiment this month came from Republicans, whose confidence indicator rose to 65 from 56.3. Among independents there was a slight increase from 74.6 to 76.6 and among Democrats there was a decrease from 101.7 to 98.4.

Other confidence indicators have also shown significant improvement this winter. According to a daily survey by Morning Consult, the increase has increased by 7% since the end of November.

And a quarterly measure of CEO confidence by the Conference Board reached 53 in the first three months of this year, the first time in two years that it topped 50 – a time when more CEOs are optimistic than pessimistic.

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