Consumer Sentiment in Focus: January Preliminary Data Could Set the Tone for 2026 Spending

At 10 a.m. Eastern Time today, the University of Michigan will release its preliminary consumer sentiment reading for January 2026—a closely watched indicator that could help determine whether America's consumption-driven economy maintains its momentum in the new year.

The December reading came in at 52.9, placing the index in just the 1st percentile of its historical range. While that represented a modest 3.7% improvement from November, sentiment remained deeply depressed compared to a year ago, down 28.5% from January 2025's reading.

Why Consumer Sentiment Matters

Consumer spending accounts for roughly 70% of U.S. gross domestic product. When Americans feel confident about their financial prospects, they tend to spend more freely—on everything from restaurant meals to major purchases like cars and appliances. When confidence wavers, spending contracts, potentially dragging down economic growth.

The Michigan survey captures this psychological dimension of the economy, asking households about their current financial conditions, buying plans, and expectations for the future. Economists use it as a leading indicator of spending trends.

What December's Data Revealed

December's report contained some concerning signals beneath the headline number:

• Current conditions plunged: The Current Economic Conditions Index fell 12.8% to an all-time low of 51.1, reflecting deteriorating assessments of personal finances and buying conditions for durable goods.
• Expectations stabilized: The Consumer Expectations Index edged up 1.4% to 51.0, suggesting that while Americans feel squeezed today, they haven't given up hope for improvement.
• Inflation expectations eased: Year-ahead inflation expectations declined for the fourth straight month to 4.2%, the lowest in 11 months. Long-run expectations fell to 3.2%.
• Labor market concerns persist: A solid majority of 63% of consumers still expects unemployment to continue rising over the next year.

What to Watch in January's Reading

Several factors could influence the January preliminary reading:

Positive Catalysts

The stock market's strong start to 2026—with the Dow crossing 49,000 and the S&P 500 hitting new highs—could boost the wealth effect for households with retirement accounts. Additionally, the prospect of larger tax refunds may be lifting spirits among those aware of the changes.

Negative Pressures

Elevated prices for essentials like groceries and insurance continue to strain household budgets. While inflation has moderated from its 2024 peaks, price levels remain significantly higher than pre-pandemic norms. The ongoing uncertainty around tariffs and potential Supreme Court rulings may also weigh on sentiment.

"Consumers are in a peculiar state right now—employed but anxious, spending but unhappy about it. The disconnect between hard data and soft sentiment has been one of the defining features of this economic cycle."

— Ellen Zentner, Chief Economist at Morgan Stanley

The Sentiment-Spending Disconnect

One of the puzzles of the post-pandemic economy has been the gap between how consumers feel and how they behave. Despite historically low sentiment readings, actual consumer spending has remained resilient. Holiday retail sales in 2025 grew 3.8% year-over-year, defying predictions of pullback.

Several explanations have been offered for this disconnect:

• Partisan polarization: Consumer sentiment has become increasingly tied to political affiliation, with respondents of the party out of power consistently reporting lower confidence regardless of economic conditions.
• Price level vs. inflation: Even as inflation slows, prices remain elevated compared to recent memory, creating persistent dissatisfaction.
• Labor market strength: Steady job growth and wage gains have supported spending even as confidence flagged.

Implications for Markets and Policy

A stronger-than-expected January reading could support the case that the economy is finding its footing in 2026, potentially reducing pressure on the Federal Reserve to cut rates aggressively. Conversely, a further decline could revive concerns about consumer-led weakness and increase expectations for monetary easing.

For retailers and consumer-facing companies, the sentiment data provides a window into spending intentions. Sectors sensitive to discretionary spending—travel, dining, entertainment—tend to be particularly responsive to shifts in consumer confidence.

The preliminary January reading will be followed by a final revision on January 24. Today's release will provide the first glimpse into how American households are feeling as they enter the new year.