U.S. consumers are more optimistic about the state of the economy than they’ve been in more than two years, according to a survey by The Conference Board released Tuesday.
The nonprofit business research group’s consumer confidence index rose for the third straight month in January to 114.8 from 108 in December.
“January’s increase in consumer confidence likely reflected slower inflation, anticipation of lower interest rates ahead, and generally favorable employment conditions as companies continue to hoard labor,” said Dana Peterson, chief economist at The Conference Board.
The uptick in consumer confidence is likely to be a welcome sign for President Biden’s reelection campaign, in which the economy is poised to play a central role after a chaotic few years.
The latest confidence reading is the highest since December 2021, when inflation hit 7 percent as the economy struggled to recover from the pandemic.
The Federal Reserve launched its first in a series of interest rate hikes a few months later in March 2022. The central bank hiked rates from near zero to a range of 5.25 percent to 5.5 percent in July 2023.
Higher interest rates have helped bring down inflation from its 9 percent peak in June 2022 to 3.4 percent, according to last month’s consumer price index, without triggering a recession — raising hopes for a rare “soft landing.”
But high borrowing costs have squeezed consumers and eaten away at their pandemic-era savings, and that pessimism has been reflected in intervening surveys by The Conference Board.
The central bank has signaled it could cut interest rates this year amid a trough of positive economic data that shows inflation continuing to ease as the labor market, wage increases and gross domestic product (GDP) growth remain strong, and consumers across the board reported feeling more optimistic.
“The gain was seen across all age groups, but largest for consumers 55 and over. Likewise, confidence improved for all incomes groups except the very top; only households earning $125,000+ saw a slight dip,” Peterson said.
“Assessments of the present situation rose in January, buoyed by more positive views of business conditions and the employment situation,” Peterson added, noting the growing share of respondents who said their current family situation was “good” and the drop in those saying it is “bad” “suggests consumers are starting off the year in good spirits about their current finances.”
The latest Gallup economic confidence index, which was also released Tuesday, likewise showed Americans are more confident in the U.S. economy than they have been in the past two years.
But the Gallup survey, and The Conference Board write-in responses, also indicate concerns linger around higher prices.
“Despite modest improvements in Americans’ views of the national economic situation, there has been little change in the percentage who characterize recent price increases as a personal hardship,” Gallup’s analysts wrote in the latest report.