U.S. Consumer Sentiment Unexpectedly Improves In December

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Consumer sentiment in the U.S. unexpectedly improved in early December, according to preliminary data released by the University of Michigan on Friday.

The report said the consumer sentiment index climbed to 70.4 in December after dropping to a ten-year low of 67.4 in November. The rebound surprised economists, who had expected the index to edge down to 67.1.

Despite the unexpected increase by the index, Surveys of Consumers chief economist Richard Curtin noted the reading was nearly identical to the average in the prior four months of 70.6.

"The more interesting result was the large disparity between monthly gain among households with incomes in the lowest third (+23.6%) of the income distribution compared with the modest losses among households in the middle (-3.8%) and top third (-4.3%)," Curtin said.

He added, "While small differences in the direction of change are rather common, it is quite unusual to record such a large change in the bottom third."

Curtin said such extreme changes are usually assumed to represent an erroneous result due to small samples but noted the only larger one-month percentage change signaled the end of the first part of the double recession in 1980-82.

The unexpected increase by the headline consumer sentiment index was partly due to a notable improvement in consumer expectations.

The index of consumer expectations jumped to 67.8 in December from 63.5 in November, while the current economic conditions index edged up to 74.6 from 73.6.

The report also showed both one-year and five-year inflation expectations were unchanged from the previous month at 4.9 percent and 3.0 percent, respectively.

"When directly asked whether inflation or unemployment was the more serious problem facing the nation, 76% selected inflation while just 21% selected unemployment," Curtin said. "The dominance of inflation over unemployment was true for all income, age, education, region, and political subgroups."

He added, "While a shift in policy emphasis is necessary, it will be difficult to gauge the right balance between fiscal and monetary policies that both trims inflation and maintains the unemployment rate near its current lows."

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