Key Points:
- Consumer sentiment declined to a level of 52.9 in December, near a record low, despite continued spending and a stable economy.
- Consumers anticipate a 4.2% inflation rate next year and a rising unemployment rate, which reached 4.6% in November.
- Economists predict inflation will stabilize or subside, and the economy may improve in 2026 with potential interest-rate cuts.
The numbers: American consumers were in a foul mood as 2025 drew to a close, and they are skeptical the new year will much better, but the news isn’t all bad. They are still spending plenty of money to keep the economic ball rolling.
A long-running survey of consumer sentiment registered a paltry 52.9 in December, the University of Michigan said Friday, leaving it near a record low.
Just how bad is that? In good times, the index usually hovers between 80 and 90, and it sometimes tops 100.
In the past, such negative sentiment was closely associated with a poor economy, but the connection between sentiment and the actual performance of the economy has loosened since the pandemic.
How come? Analysts point to a low unemployment rate and rising incomes to explain why Americans keep spending at levels consistent with a stable economy.
For all their angst, consumers feel pretty secure in their jobs. While businesses are no longer adding a lot more workers, they are mostly avoiding layoffs, too. The level of layoffs is also near a record low.
Yet as long as inflation persists at elevated levels, the mood of consumers is unlikely to improve much. They consistently cite inflation as a major frustration.
Key details: Consumers expect the rate of inflation to rise by 4.2% in the next year, but that’s unlikely to be the case. The rate of inflation is running at or slightly below 3%, and it’s likely to slow further in the coming year.
Consumers also think unemployment will continue to rise in 2026. The jobless rate climbed to a four-year high of 4.6% in November from 4% at the start of the year.
Yet most economists predict inflation will stabilize soon or even subside next year.
Looking ahead six months, Americans were still pessimistic. The so-called expectations index moved up to 54.5 in December from 51 in the prior month, but it also sits near a record low.
The consumer-sentiment survey, first published in 1978, helps gauge how Americans feel about their own finances as well as the broader economy.
Big picture: The first year of the Trump administration was a tumultuous one. The president upended Washington, D.C., with big cuts in government employment and the highest U.S. tariffs in decades, while a record government shutdown added to the tension.
The economy could show improvement in 2026, however, as the trade wars die down, more tax cuts kick in and businesses ramp up investment in artificial intelligence, analysts say.
What will also help are further interest-rate cuts by the Federal Reserve. The Fed has cut rates three times since September to try to boost the labor market.
The path of inflation is likely to be the biggest influence, however, on the attitude of Americans upset by five years of rising prices.
