US Sentiment

According to Joanne Hsu, Director of the Surveys of Consumers, December sentiment only inched up from November, well within the margin of error. That matters: it means we’re not seeing a genuine inflection higher so much as a modest stabilization after a long slide.

A split consumer, again

The data quietly reinforces the K-shaped narrative we’ve been seeing elsewhere:

• Lower-income consumers saw sentiment improve.
• Higher-income consumers were largely unchanged.

That’s a familiar pattern: those under more pressure respond most to changes in gas prices, wages, and inflation headlines, so any perceived relief can move the needle more for them. Higher earners, with more cushion, are less reactive in the short term.

At the same time, buying conditions for durable goods fell for the fifth straight month. That’s big-ticket items—cars, appliances, furniture. When people feel squeezed or uncertain, that’s exactly where they cut first. So even as some expectations improve, the willingness to spend on “big stuff” is still deteriorating.

Expectations Up, but Anxiety is Still the Base Case

There are green shoots:

• Expectations for personal finances rose in December.
• Views on business conditions improved as well.
• Labor market expectations ticked higher, meaning people are slightly less pessimistic than before.

But then comes the key line: 63% of consumers still expect unemployment to rise over the next year. That’s not a small minority; that’s a solid majority effectively bracing for a softer job market.

Put differently: households are saying, “Things might get a bit better for me personally, but I still expect the broader economy to weaken.”

Inflation Expectations are Improving, but Not “Back to Normal”

The inflation story is more nuanced, and quietly important for the Fed:

• Year-ahead inflation expectations fell for the fourth month in a row, down to 4.2%.
  • That’s the lowest level in 11 months, but still well above the 3.3% reading from January.
• Long-run inflation expectations eased from 3.4% to 3.2%, matching the January 2025 level.
  • For context: expectations ranged between 2.8% and 3.2% last year, and were below 2.8% in 2019–2020.

So the public is gradually dialing down its inflation fears, but hasn’t fully bought into a “back to 2% and done” narrative. From the Fed’s perspective, that’s a mixed blessing: progress, but not victory. Anchored expectations are critical for long-run price stability, and we’re still hovering above the pre-pandemic comfort zone.

How to Read This as an Investor or Policymaker

Put together, December’s sentiment picture looks like this:

• Consumers are less pessimistic, not suddenly optimistic.
• Lower-income households are getting some relief, but big-ticket spending is still under pressure.
• Most people expect unemployment to rise, even as they feel slightly better about their own finances.
• Inflation expectations are improving, but not yet reset to pre-pandemic norms.

For policymakers, that argues for a careful, data-dependent path: inflation progress is feeding into expectations, but confidence is fragile and labor market fears are very real in the minds of households.