U of M Sentiment at 93.3 for January vs. 92.9 Expected

Consumer confidence inched upward for the fourth consecutive month due to more positive expectations for future economic growth. Personal financial prospects have remained largely unchanged during the past year at the most favorable levels since 2007 largely due to trends in inflation rather than wages. Indeed, expected wage gains fell to their lowest level in a year in early January, but were more than offset by declines in the expected inflation rate. The result was that inflation-adjusted income expectations rose to their highest level in nine years. Consumer optimism is now dependent on the continuation of an extraordinarily low inflation rate. Rather than welcoming a rising inflation rate as a signal of a strengthening economy, consumers are now more likely to reduce the pace of their spending and thus act to erase the Fed's rationale for higher interest rates. Given the favorable overall state of the Sentiment Index, the data continue to indicate that real personal consumption expenditures can be expected to advance by 2.8% in 2016.