Consumer sentiment in the United States has surged to its highest level in six months, reflecting a complex economic landscape characterised by stark disparities between wealthier and poorer households. The latest data from the University of Michigan indicates a cautious optimism among those with substantial stock portfolios, even as concerns about the labour market and inflation persist.
Sentiment Index on the Rise
The University of Michigan’s Consumer Sentiment Index climbed to 57.3 in February, up from 56.4 in January, marking the third consecutive month of improvement. This increase, however, comes with caveats. Economists had anticipated a decline to 55.0, highlighting a significant divergence in consumer experiences. Notably, the index remains approximately 20 per cent lower than the reading from January 2025, signalling ongoing uncertainty in the economy.
Oren Klachkin, a financial markets economist at Nationwide, noted, “We may have seen the trough in consumer sentiment as positive fundamentals should support attitudes in 2026, as long as the recent stock market sell-off doesn’t continue.” However, he tempered expectations, suggesting that a sharp rebound in sentiment is unlikely.
Disparities in Economic Experience
The sentiment boost appears largely driven by affluent Americans, as evidenced by the significant rise among consumers with larger stock holdings. Joanne Hsu, director of the Surveys of Consumers, remarked, “Sentiment surged for consumers with the largest stock portfolios, while it stagnated and remained at dismal levels for consumers without stock holdings.” This observation underscores the K-shaped recovery, where higher-income households thrive while lower-income individuals grapple with persistent inflation and job insecurity.
Despite a general uptick in sentiment among Republicans and Democrats, Independents reported a decline. This mixed response highlights the underlying anxieties regarding the labour market, which have been exacerbated by a recent government report indicating job openings fell to their lowest levels in over five years.
Inflation Expectations and Market Reactions
Consumers expressed ongoing worries about elevated prices, though there are signs of cautious optimism regarding future inflation. The survey’s measure of consumer expectations for inflation over the next year dropped to a 13-month low of 3.5 per cent, down from 4.0 per cent in January. Some economists interpret this decline as evidence that consumers believe the worst impacts of tariff-related price increases may be behind them.
However, expectations for inflation over the next five years edged up slightly to 3.4 per cent. John Ryding, chief economic advisor at Brean Capital, commented on the Federal Reserve’s focus on medium-term expectations, stating, “None of this changes the March rate decision for the Fed; it will come down to the January and February employment reports.”
Wall Street Reacts
In the wake of these developments, Wall Street experienced a rebound on Friday, with the dollar remaining stable against a basket of currencies. U.S. Treasury yields also saw an uptick, reflecting investor sentiment amidst the mixed economic signals.
Why it Matters
The rise in consumer sentiment, while encouraging, paints a complex picture of the U.S. economy. It highlights growing inequalities where wealthier Americans experience a resurgence in confidence, while many lower-income households continue to face significant challenges. As inflation pressures and job market uncertainties loom, understanding these dynamics will be crucial for policymakers and economists alike as they navigate the path toward economic recovery.
