American consumers, including Democrats and Republicans, are feeling better about the U.S. economy, the University of Michigan's consumer survey showed on Friday, in what could be welcome news for President Joe Biden who has struggled to convince voters that he is best equipped to manage the economy heading into the presidential election in 2024.
Consumer sentiment jumped 13 percent in January to its highest level since July 2021. The feeling of confidence about the economy cut across age, income, education, geography and even political affiliation. Democrats and Republicans showed their most favorable readings since the summer of 2021, according to the survey.
"It is true that Democrats and independents had larger proportional increases in sentiment. Republicans, their increase was more modest, but they're still much higher than they were last year," Joanne Hsu, Surveys of Consumers Director, told Newsweek.
Biden has been battling the perception that the country was headed in the wrong direction, with polls showing that voters are skeptical about whether he is the best person to manage the economy.
But inflation slowing from its four-decade highs and the jobs market still employing Americans amid interest rates at their highest in two-decade has helped shift the way consumers are feeling about the economy.
"Consumers are feeling much more confident that inflation has turned a corner, that the inflation slowdown is going to stick," Hsu said. "The second thing that consumers are more confident about is with their labor market perceptions and expectations. They're feeling more confident about the trajectory of their incomes in the year ahead."
In response to Newsweek's request for comment, a White House spokesperson shared a statement from Jared Bernstein, chairman of the council of economic advisers, who said the survey's results were a sign that Biden's policies were working.
"Today we learned consumer sentiment surged by 29% over the last two months. That's the biggest two-month jump in more than 30 years," Bernstein said. "President Biden is making progress lowering inflation while maintaining a strong job market."
He went on to say that wages have gone up during Biden's time in office, while the economy has added millions of jobs.
"We have more work to do, but we're on the right path as we execute President Biden's agenda, and people are starting to feel it," Bernstein added.
University of Michigan's Hsu said that consumers feeling secure in their jobs contributed to their positive outlook on the economy.
"That, in combination with confidence in the slowdown in inflation, those are mainly the two things that are driving this dramatic increase in consumer sentiment," she told Newsweek.
The Consumer Sentiment Index for Democrats in January jumped by about 11 points to 101.3 from the previous month, while for Republicans it ticked up by nearly a point to 57.7. When it comes to the current economic conditions, Republican sentiment improved to nearly 62 points from 58.5 in December. Democrats' feelings about the economy also jumped to 106.5 from about 90 points last month, the survey showed.
Sentiments about the economy would appear to be responding to recent economic news that shows inflation has been cooling and that employers are continuing to hire. This comes amid high interest rates instituted by the Federal Reserve to battle soaring price increases that have pushed up borrowing costs, including for business investment, that analysts said would slow the economy.
On Thursday, jobless claims fell to their lowest level since September 2022, suggesting that Americans can find jobs. The unemployment rate is at 3.7 percent after employers added 216,000 jobs in December. Meanwhile, while inflation ticked up to 3.4 percent last month it was still lower than when it skyrocketed to 9 percent in the summer of 2022.
For the year ahead, consumers expect inflation to hit 2.9 percent down from 3.1 percent in December, the Michigan survey showed, in what is the lowest reading since December 2020. The five-to-ten-year outlook fell to 2.8 percent, the lowest it's been since September.
With consumer spending contributing to more than two-thirds of U.S. economic growth, it portends well for 2024 that Americans are feeling positive about their financial conditions.
"The fact that consumers are on an upward trajectory provides some momentum for the economy," Hsu told Newsweek.
Analysts say that the 2024 election would likely hinge on the economy and how voters feel about it when they cast their votes in November.
"I have always stood by the idea that this is going to be an election on the economy and nothing else for the most part," said Joshua Doss, a senior political analyst at HIT Strategies, a Washington, D.C.-based opinion research firm.
The improved consumer sentiment about the economy could help President Biden as he prepares to go to voters and ask them to re-elect him into office.
"We've had bad vibes around the good economy that has kind of existed for the last six months and sentiment is just kind of now catching up with what has already existed," Doss told Newsweek, referring to the Michigan survey. "As far as the electoral standings, I think it's going to be very, very, good for President Biden."
Update: 1/19/24, 7:15 p.m. ET: This article has been updated with comment from Bernstein.
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About the writer
Omar Mohammed is a Newsweek reporter based in the Greater Boston area. His focus is reporting on the Economy and ... Read more
