Americans are feeling increasingly optimistic about the economy. That’s the message of a December survey conducted by the University of Michigan. The survey revealed that consumer sentiment has reached its highest level since April, reflecting a gradual recovery in public confidence as inflation eases. Despite the good vibes, overall sentiment remains below pre-pandemic levels. This caveat highlights several ongoing economic challenges. 

Joanne Hsu, director of the University of Michigan Surveys of Consumers, noted, “Broadly speaking, sentiment is currently about midway between the all-time low reached in June 2022 and pre-pandemic readings.”

Steady Gains in Consumer Sentiment

December marked the fifth consecutive month that consumer sentiment increased. The index rose 3.1% from November and 6.2% compared to December 2023. December’s final consumer reading reached 74. This is just slightly below the 74.2 Bloomberg forecasted earlier this month. 

Several broader economic gains are fueling the increased confidence. Chief among these is GDP growth. The Bureau of Economic Analysis reported on Thursday that the economy surpassed expectations by growing at an annualized rate of 3.1% during the third quarter. Consumer spending accounts for roughly 70% of GDP. According to the personal consumption expenditures index, it played an outsized role in overall growth by rising by an annualized 3.7%. 

Economic Confidence by the Numbers

Consumers’ improving outlook reflects a mix of better economic indicators and a handful of lingering uncertainties. The sentiment index shows that Americans are at a middle ground between the record low seen in June 2022 and the stronger pre-pandemic levels. 

“Importantly, for Independents, expectations were essentially unchanged from the past month or so for personal finances, short-run business conditions, and long-run business conditions,” Hsu confirmed.

Also of note: There’s been a post-election recalibration of expectations. Republican respondents are notably more optimistic. Democrats, meanwhile, hold slightly lower expectations than in previous months. 

Optimism Among Working Consumers

American optimism extends to the workplace. Many workers report feeling more confident about career advancement opportunities. A case in point? A recent PYMNTS Intelligence report, New Reality Check: The Paycheck-to-Paycheck Report, showed that over one-third of working consumers believe job prospects have improved compared to recent years. However, paycheck-to-paycheck workers were less likely to share this optimism. Their pessimism reflects the uneven nature of America’s economic recovery.

For those enjoying stable employment, confidence in career growth aligns with two broader economic indicators: strong GDP performance and resilient consumer spending.

Broader Implications for the Economy

Consumer sentiment plays a vital role in the American economic system. Personal consumption drives the majority of GDP, so consumer confidence directly impacts economic growth trends. An example of this relationship? The 3.1% annualized GDP growth reported for the third quarter highlights the critical connection between how the public feels and the country’s economic health.

As labor markets remain relatively robust and inflation moderates, economists remain cautiously optimistic regarding a full economic recovery. This is even as lingering inflation and uneven income growth continue to weigh on the minds of many Americans.

Looking Ahead

The best way to summarize the latest data? There currently exists a complex economic landscape in which optimism and caution coexist. Sentiment has improved, but it remains below pre-pandemic levels. The evidence is clear: consumers are still navigating the extreme—and unprecedented—effects of a disruptive global pandemic. 

Businesses and policymakers must do everything possible to maintain the momentum seen in America’s slow and steady economic recovery. Consumer spending will remain a cornerstone of GDP, so instilling consumer confidence will be key to continued economic growth. 

Hsu captured the mood behind the results of the recent University of Michigan survey: “Consumers believe that the economy has improved considerably as inflation has slowed, but they do not feel that they are thriving.”