Consumer sentiment improved for the fifth consecutive month, rising about 3% to its highest reading in seven months. A surge in buying conditions for durables led Current Economic Conditions to soar more than 20%. Rather than a sign of strength, this rise in durables was primarily due to a perception that purchasing durables now would enable buyers to avoid future price increases. The expectations index continued the post-election re-calibration that began last month, climbing for Republicans and declining for Democrats in December. Independents were, as usual, in the middle between the two major parties, with readings close to the national average. This adjustment process is consistent with a response to actual underlying changes in expectations for the national economy, and not merely an expression of partisanship. For example, throughout this month’s interviews, Democrats voiced concerns that anticipated policy changes, particularly tariff hikes, would lead to a resurgence in inflation. Republicans disagreed; they expect the next president will usher in an immense slowdown in inflation. As such, national measures of sentiment and expectations continue to reflect the collective economic experiences and observations of the American population as a whole.

Overall, year-ahead inflation expectations rose from 2.6% last month to 2.9% this month, the highest reading in six months but within the 2.3-3.0% range seen in the two years pre-pandemic. Long-run inflation expectations edged down from 3.2% last month to 3.1% this month, modestly elevated relative to the range of readings seen in the two years pre-pandemic.