Core Viewpoint - Consumer outlook improved in January, with the University of Michigan's Index of Consumer Sentiment rising to 56.4 from 52.9 in December, indicating gains in both current conditions and expectations [1] Consumer Sentiment - The headline sentiment index is over 20% lower than a year ago, highlighting persistent inflation pressures and labor market uncertainty affecting household psychology [3][6] - Year-ahead inflation expectations decreased to 4.0%, down from December, providing some relief, but longer-term expectations edged higher, indicating skepticism about price stability [4] Financial Conditions - Consumers acknowledge recent inflation slowing but feel prices remain high relative to income growth, influencing everyday spending decisions, especially for essentials [5] - Approximately two-thirds of consumers are living paycheck to paycheck, with a growing number doing so out of necessity rather than choice [9] Economic Indicators - Weekly jobless claims remain stable, suggesting continued labor market stability, while GDP data indicates solid output despite households expressing uncertainty about their finances [7] - Fewer than half of consumers feel they could manage a $1,000 unexpected expense without falling behind on obligations, reflecting underlying financial fragility [10] Spending Behavior - Consumers are likely to remain cautious in spending, focusing on necessities while filtering discretionary purchases through concerns about income stability and unexpected expenses [12]

It is hard to understate the importance of inflation in Americans’ concerns today. Not only is it almost always the top issue of concern for Americans in the polls, but people also think it is getting worse. Handling inflation is one of President Trump’s weakest areas. The polls document rising concerns about paying bills up and down the income scale and greater concern about debt.The Economist/YouGov mid-September survey found that 41% said their personal finances were the same as a year ago, but almost as ...