A key indicator of U.S. consumer confidence surged in December as the economy added 216,000 jobs, substantially exceeding economists’ expectations. The Conference Board reported that its Consumer Confidence Index climbed to 110.7 from a downwardly revised 101 in November.

“December’s increase in consumer confidence reflected more positive ratings of current business conditions and job availability, as well as less pessimistic views of business, labor market and personal income prospects over the next six months,” Dana Peterson, chief economist at The Conference Board, stated in a press release.

“While December’s renewed optimism was seen across all ages and household income levels, the gains were largest among householders aged 35 to 54, and households with income levels of $125,000 and above,” Peterson added. “December’s write-in responses revealed the top issue affecting consumers remains rising prices in general, while politics, interest rates and global conflicts all saw downticks as top concerns. Consumers’ perceived likelihood of a U.S. recession over the next 12 months abated in December to the lowest level seen this year — though two-thirds still perceive a downturn is possible in 2024.

“Consumer expectations for the next six months also increased in December, reflecting improved confidence about future business conditions, job availability and incomes,” Peterson continued. “Expectations that interest rates will rise in the year ahead plummeted to the lowest levels since January 2021, and consumers’ outlook for stock prices rose to levels of optimism last seen in mid-2021. Meanwhile, average 12-month inflation expectations continued to recede, and it now stands at 5.6%. Consumers’ views of their expected family financial situation six months hence (not included in calculating the Expectations Index) also improved in December. Likewise, on a month-to-month basis, buying plans for autos, homes and big-ticket appliances rose moderately across the board, ending the year on a slightly more positive note.”

A separate indicator of consumer sentiment also rose significantly in December. The University of Michigan reported that its Consumer Sentiment Index increased from 61.3 in November to 69.7 in December.

“Consumer sentiment confirmed its mid-month reading and soared 14% in December, reversing all declines from the previous four months,” Joanne Hsu, director of the university’s Surveys of Consumers, stated in a press release. “These trends are rooted in substantial improvements in how consumers view the trajectory of inflation. All five index components rose [in December], which has only occurred in 10% of readings since 1978.

“Expected business conditions surged over 25% for both the short and long run,” Hsu added. “All age, income, education, geographic and political identification groups saw gains in sentiment [in December]. The index is now just shy of the midpoint between the prepandemic reading and the historic low reached in June 2022. Year-ahead inflation expectations plunged from 4.5% [in November] to 3.1% [in December]. The current reading is the lowest since March 2021 and sits just above the 2.3% to 3% range seen in the two years prior to the pandemic.”

The U.S. Department of Labor reported that the unemployment rate was unchanged from November at 3.7%. The economy averaged 225,000 new jobs a month in 2023. The government revised downward its job totals for October and November. The new October total is 105,000, down from the originally reported 150,000, and the November total was revised down to 173,000 from 199,000. The department reported that government employment increased by 52,000 in December. Other notable increases occurred in health care (38,000), social assistance (21,000) and construction (17,000).

“In many ways, the labor market is at its best place it has been, not only since [before Covid-19], but by some measures in decades,” Diane Swonk, chief economist at accounting giant KPMG, told The Washington Post.

The continuing strength of the job market put a damper on sentiment that the Federal Reserve would cut interest rates when its policymaking committee next meets in March. The Jan. 5 “report speaks to the bumpy road ahead for the Fed’s journey back to 2% inflation,” Andrew Patterson, senior international economist at Vanguard, told CNBC. “The decision of when to first cut policy rates remains one for the second half of the year, in our view.”

The Labor Department reported that average hourly earnings rose by 15 cents to $34.27, in December, exceeding expectations. During the 12-month period through December, average hourly earnings increased by 4.1%. The strong pay gains that union autoworkers obtained after their six-week strike against major U.S. vehicle builders contributed to the national improvement.

The U.S. Department of Commerce reported that consumer spending, which represents more than two-thirds of U.S. economic activity, rose 0.3% in November. Personal income rose 0.4%.

“The resilience of the consumer provides credibility to the Fed achieving a soft landing but should also be a signal to markets that the Fed is not likely to cut rates as quickly and as much as the markets now have priced in,” Kathy Bostjancic, chief economist at Nationwide, told Reuters. “The stronger economic activity remains, the slower inflation declines, and the slower the Fed responds with rate cuts.”

The February issue of Soundings Trade Only includes a complete report on the U.S. economy.