Consumers say they’re feeling better about the economy. But they’re still planning for a recession

By Alicia Wallace, CNN

For the second month in a row, consumers said they are feeling better about the economy.

The University of Michigan’s closely watched consumer sentiment index measured 64.9 for January, according to data released Friday. That’s up slightly from the preliminary reading of 64.6 earlier this month and 9% higher than December’s final reading.

But it’s still historically low: The index measured 101 in February 2020, and it had an average reading of 86 between that date and the first-ever reading in November 1952.

A separate report released earlier on Friday showed that consumers cut back on their spending in December and started stashing more in their savings as they prepare for a potential recession.

That caution was also reflected in the Michigan surveys.

“There are considerable downside risks to sentiment, with two-thirds of consumers expecting an economic downturn during the next year,” said Joanne Hsu, director of the university’s Surveys of Consumers. “Notably, the debt ceiling debate looms ahead and could reverse the gains seen over the last several months; past debt ceiling crises in 2011 and 2013 prompted steep declines in consumer confidence.”

Year-ahead inflation expectations declined for the fourth consecutive month, falling to 3.9% in January from 4.4% in December.

Long-run inflation expectations held at 2.9%, according to the report. It has been hovering at around 3% for the past year and a half.

“Consumers continued to exhibit considerable uncertainty over both long- and short-term inflation expectations, indicating the tentative nature of any declines,” Hsu said in comments accompanying the report.

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