Chart of the Week: Pessimistic consumers are suddenly feeling better

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Friday’s consumer sentiment index, out from the University of Michigan, showed a 13% jump in how people feel about the economy, surprising investors with this positivity.

Four months of pessimism have been erased in one fell swoop. To consumers, it feels like summer. Or last August anyway.

The report said that this good mood is “primarily on the basis of improvements in the expected trajectory of inflation.”

It’s not the only sign of an often pessimistic cohort putting a smile on.

Last week’s Consumer Confidence Index from The Conference Board showed a wave of optimism rolled through in November, snapping a three-month decline. Higher prices, wars, and rates had led consumer concerns. And The Conference Board found these increases in optimism were largely driven by the 55-plus age group.

Which speaks to one of the great things about these surveys: You don’t really have to wonder why.

People are suddenly feeling good about inflation and where it’s heading, which has been the 2023 bugaboo for both Fed Chair Jay Powell and pretty much anybody who buys things — also known as consumers.

Friday’s report, on this count, also offered some notable optimism. Consumers now expect prices to rise next year at the slowest pace in two years, and inflation over the long run is expected to rise by the least since 2011.

Randomly surveyed consumers pulling numbers out of their heads may not seem meaningful.

But Jay Powell and the Federal Reserve understand that these are the very people who both buy stuff and set the prices.

And their declining pessimism on these bases will very much be noted by the central bank.

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