American consumer confidence rose sharply in January, reaching its highest level in five months as people felt better about the economy and their own money situation. The University of Michigan’s final sentiment index climbed to 56.4, up 3.5 points from December. The reading came in above the early estimate and beat every forecast in a Bloomberg survey of economists.
The increase marked the largest monthly gain since June. Optimism improved across income levels, age groups, education backgrounds, and political affiliations. Fewer people brought up tariffs without being prompted.
That share has now fallen for five straight months, based on the same survey. Even with the improvement, overall sentiment is still more than 20% lower than a year ago, as consumer pressure from high prices and job worries has not gone away.
Households report better finances while price worries ease slightly
Survey data showed Americans expect prices to rise 4% over the next year, the lowest one‑year outlook since January 2025.
Over a longer period of five to ten years, expected inflation stood at 3.3%. Despite anger over prices, consumer spending stayed firm and continued to support economic activity.
Buying conditions for durable goods improved to a three‑month high. Tax refunds are also expected to help ease stress for many households in the months ahead.
A separate gauge tracking expectations for personal finances jumped to an almost one‑year high. Views on current household finances improved at the same time.
An index measuring overall expectations rose to a six‑month high. Another index that tracks current conditions bounced back after hitting a record low in December. On global events, Joanne Hsu, who directs the survey, said, “They do not appear to see meaningful consequences for their personal finances nor the US economy more generally.”
The survey collected responses between Dec. 16 and Jan. 19. During that period, consumer views on the economy improved even as uncertainty remained in other areas.
Businesses add a few workers as growth stays slow
While consumer sentiment improved, U.S. businesses started the year with only mild gains. S&P Global’s flash January composite output index edged up 0.1 point to 52.8 after dropping to an eight‑month low late in 2025. Any reading above 50 signals expansion, but growth stayed weak.
Chris Williamson of S&P Global Market Intelligence said, “A worryingly subdued rate of new business growth across both manufacturing and services adds further to signs that first‑quarter growth could disappoint.”
He also said, “Jobs growth is meanwhile already disappointing, with near stagnant payroll numbers reported again in January, as businesses worry about taking on more staff in an environment of uncertainty, weak demand and high costs.”
Headcount barely grew in January. New orders increased, but the pace remained below most of last year’s levels. Manufacturing activity improved slightly, though the index stayed close to its weakest level since July. Service sector activity matched the slowest expansion since April.
New manufacturing orders rose modestly after shrinking in December for the first time since 2024. Service sector orders also improved. Cost pressures eased, with indexes for input prices and prices charged both moving lower.
Even so, the data did not suggest inflation is cooling fast. With inflation still above the Federal Reserve’s target, policymakers are widely expected to keep interest rates unchanged next week.
