Consumer sentiment in the U.S. has improved by much more than expected in the month of December, according to a report released by Thomson Reuters and the University of Michigan on Friday.
The report said the preliminary reading on the consumer sentiment index for December came in at 93.8 compared to the final November reading of 88.8. Economists had expected the index to show a more modest increase to 89.5.
With the much bigger than expected increase, the consumer sentiment index reached its highest level since January of 2007.
Paul Dales, Senior U.S. Economist at Capital Economics, said, "Confidence is clearly being boosted by record high equity prices, the breakneck pace of job growth and the plunge in gasoline prices."
"At face value, this survey is consistent with annualized real consumption growth accelerating from 2.2% in the third quarter to around 5.0% in the fourth," he added. "We currently think that 3.0% is more plausible, but it is clear in which direction the risks lie."
The jump by the headline index reflected a notable increase by the survey's gauge of consumer expectations, which surged up to a nearly eight-year high of 86.1 in December from 79.9 in November.
The survey's barometer of current economic conditions also climbed to 105.7 in December from 102.7 in November, reaching its highest level since February of 2007.
On the inflation front, one-year inflation expectation rose to 2.9 percent from 2.8 percent, while the five-year inflation outlook jumped to 2.9 percent from 2.6 percent.
Dales said the increases by the survey's inflation expectations will ease fears about the impact of lower gasoline prices.
"As such, when it comes to thinking about when to raise rates, the Fed will place more weight on the stronger economic outlook than the weaker near-term inflation picture," Dales said.
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