Consumer sentiment rises above expectations in January but remains below last year's level

• Year-ahead inflation expectations held steady at 4.2%, the lowest since January 2025 but well above that month's 3.3% reading, while long-run inflation expectations rose from 3.2% to 3.4%
• Consumer sentiment remains nearly 25% below last January's reading, with over 90% of consumers focused on 'kitchen table issues' like high prices and weak labor market conditions
• The report comes as the U.S. economy added only 50,000 jobs in December, with total 2025 job growth of just 584,000 - the weakest annual increase outside a recession since 2003

Consumer Sentiment Summary – January 2026

Key Data Points

The University of Michigan's Consumer Sentiment Index rose to 54 in January from 52.9 in December, exceeding economist expectations of 53.5. However, this represents a significant 25% decline from January 2025's reading of 71.7, indicating sustained deterioration in consumer confidence year-over-year.

Inflation Expectations

Year-ahead inflation expectations held steady at 4.2%, matching the lowest reading since January 2025 but well above that period's 3.3%. Long-run inflation expectations increased from 3.2% to 3.4%, remaining elevated compared to the 2.8%-3.2% range seen throughout 2024 and pre-2021 levels below 2.8%.

Demographic Divide

Survey Director Joanne Hsu noted improvements were concentrated among lower-income consumers, while sentiment declined for higher-income households, reflecting divergent economic experiences across income brackets.

Labor Market Context

The sentiment report coincides with weak January jobs data showing only 50,000 jobs added, capping a year with just 584,000 total jobs created—the weakest annual increase outside recession since 2003, compared to 2 million jobs added in 2024.

Market Implications

Consumers remain focused on "kitchen table issues" including persistent high prices and softening labor markets. While tariff concerns appear to be gradually receding, households remain cautious about business conditions and employment prospects. The sustained depression in sentiment compared to prior-year levels suggests potential headwinds for consumer spending, which drives the U.S. economy. This could impact retail sector performance, including major players like Walmart, Target, Kroger, and Costco.

The combination of elevated inflation expectations and weak labor market conditions presents challenges for Federal Reserve policy and economic growth prospects.