US Consumer Mood Brightens Heading Into Holiday Season: University of Michigan

While the inflation outlook improved, price pressures continued to weigh on sentiment.

People shop at a grocery store in Elkridge, Md., on Oct. 24, 2025. Madalina Kilroy/The Epoch Times

Consumers are slightly more optimistic about the U.S. economy and inflation expectations heading into the new year, according to the University of Michigan.

The preliminary December Consumer Sentiment Index rose 4.5 percent to 53.3 from 51 in November—the second lowest in the series history—and represented the first increase since July.

The widely watched monthly survey topped market expectations of 52.

December’s increase was broad-based across age, income, education, and political affiliations amid improved expectations for personal finances, which climbed 13 percent. The labor market outlook also ticked up.

Consumers’ evaluation of current economic conditions slipped 0.8 percent to 51.1, while their expectations surged almost 8 percent to 55.

Price pressures continue to weigh on Americans’ sentiment, says Joanne Hsu, director of the university’s consumer surveys.

“Consumers see modest improvements from November on a few dimensions, but the overall tenor of views is broadly somber, as consumers continue to cite the burden of high prices,” Hsu said in the report.

Despite their frustrations over high prices, consumers’ inflation projections for the year ahead softened to 4.1 percent from 4.5 percent last month—the lowest level since January.

The five-year inflation outlook also eased to 3.2 percent from 3.4 percent.

These readings marked the fourth consecutive decline in inflation forecasts, Hsu noted. But they are higher than a year ago, as President Donald Trump’s sweeping global tariffs have contributed to this year’s rising consumer inflation expectations.

“In comparison, 2024 readings ranged between 2.8 and 3.2 percent, while the readings in 2019 and 2020 were below 2.8 percent,” she said.

“Inflation uncertainty over both time horizons—as measured by the interquartile range of responses—remains higher than January of this year.”

Examining the Inflation Issue

The U.S. government shutdown has delayed the release of key economic reports.

The September numbers, however, suggested that the current administration’s trade agenda is not having a material impact on aggregate inflation levels as many economists had anticipated earlier this year.

The personal consumption expenditures (PCE) price index—the Federal Reserve’s preferred inflation measure—edged up to 2.8 percent, in line with economists’ expectations.

But core PCE inflation, which omits noisy energy and food prices, dipped to a lower-than-expected 2.8 percent.

Inflation has eased substantially since mid-2022, but it has remained stubbornly above the Fed’s 2 percent target for four straight years.

With levies playing a role in inflation trends, monetary policymakers have been treading carefully as they try to balance the institution’s dual mandate on maximum employment and price stability.

Several Fed officials have stated that the White House’s tariff policy will likely lead to a one-time price increase rather than result in persistent underlying inflation pressures.

“Tariff effects have been smaller than many forecasters expected, and the fraction borne by consumers will only modestly boost inflation—an effect that has been quite gradual so far because of the slow drawdown of inventories that was built up in anticipation of tariffs,” Fed Governor Christopher Waller said in a speech overseas last month.

Waller is considered a heavyweight contender for the top central bank position.

Speaking in a recent interview with Fox Business, he indicated the 12-month inflation rate excluding tariffs is between 2.4 percent and 2.5 percent.

Business reports have presented mixed views on whether tariffs will be passed on to their customers, or at a substantial rate.

The Institute for Supply Management’s November Purchasing Managers’ Index (PMI)—a monthly survey spotlighting the industry’s prevailing economic direction—showed significant easing of price pressures in the service sector, slowing to a seven-month low.

Conversely, the organization’s manufacturing survey showed an upward trend in input prices for the first time since June.

The latest Beige Book—a summary of economic conditions across the Fed’s 12 districts—highlighted that while prices rose moderately amid input cost pressures, firms were reluctant to pass them on to customers.

“The extent of passthrough of higher input costs to customers varied, and depended upon demand, competitive pressures, price sensitivity of consumers, and pushback from clients,” the report stated.

“There were multiple reports of margin compression or firms facing financial strain stemming from tariffs.”

Wholesale inflation inched higher in September. The producer price index—a measure of prices paid for goods and services by businesses—rose 0.3 percent following a 0.1 percent decline in August. Core producer inflation ticked up 0.1 percent.

Economists monitor the index because it often serves as a pipeline for inflation, potentially indicating what consumers may pay in the future.

Looking ahead, the Cleveland Fed’s Inflation Nowcasting estimates suggest annual inflation has stalled at around 3 percent.

Alternatively, Truflation’s US Inflation Index, which relies on a treasure trove of real-time data points, sits at 2.45 percent.