Dive Brief:

• Consumer sentiment rose this month even as anxieties persisted over high prices and the outlook for jobs, according to the results of a University of Michigan survey released Friday.
• Expectations for inflation in a year declined but remained above the level in January 2025, Joanne Hsu, the university’s consumer surveys director, said in a statement. Meanwhile, most consumers expect unemployment to rise this year, she said. 
• “National sentiment remains more than 20% below a year ago, as consumers continue to report pressures on their purchasing power stemming from high prices and the prospect of weakening labor markets,” Hsu said. The survey sentiment index increased to 56.4 from 52.9 last month.

Dive Insight:

Recent data suggest the outlook for the economy — and consumer spending — is brightening.

Gross domestic product probably grew at a 5.4% annual rate during the fourth quarter, the Federal Reserve Bank of Atlanta said Thursday. During the third quarter, the economy expanded at a 4.4% annual rate, according to the Bureau of Economic Analysis.

Unemployment fell in December to 4.4% from 4.5% in November. Also, initial claims for unemployment benefits rose by just 1,000 to a less-than-forecast 200,000 in the week ended Jan. 17, the Labor Department said Thursday. The four-week moving average of benefit applications fell to a two-year low.

Meanwhile, the Fed’s preferred inflation measure is on track to fall below the 3% forecast by policymakers for all of 2025, according to the BEA.

The personal consumption expenditures price index minus volatile food and energy prices rose 2.8% in November, the BEA said, or below the 3% projection by Fed officials last month for 2025.

Despite anxieties over price pressures and the labor market, consumers increased spending at a 3.5% annual pace during the fourth quarter, the BEA said. Consumers fuel roughly 70% of U.S. economic growth.

U.S. households have apparently not fully embraced the good news.

Expected income growth among consumers increased slightly this month but remains below the level in late 2024, according to Hsu. Also, roughly 62% of consumers expect unemployment to rise in the coming 12 months.

“These dour views on labor markets are widespread, held by consumers across income groups,” she said.

Also, the portion of households spontaneously mentioning the harm to living standards from high prices increased to 45% from 34% a year ago, according to Hsu.

When asked to assess the economy, two out of five consumers spontaneously mentioned the Trump administration’s tariff policy. Inflation from the import taxes should begin to slow after June, according to Fed officials.