Consumer Sentiment from the University of Michigan improved by 3.2 points in the final reading of 2021, primarily because the outlook of low-income households jumped as they begin to realize the benefits of the ongoing labor shortage in the form of wage growth. Even so, consumers’ inflation expectations remain near their multi-decade highs, which has kept overall Sentiment at a historically depressed level. While this month’s uptick was a welcome development, the fact that Sentiment remains below its 2020 pandemic lows despite economic reopening and all the progress made against the virus is not insignificant and is indicative of how heavily inflation is weighing on consumers.
