U.S. consumers felt a bit better at the start of 2026 as the preliminary January consumer sentiment index rose to 54 points, up from 52.9 in December, according to the University of Michigan.
The reading marked the highest level since September 2025 and came in slightly above expectations for 53.5.
The increase followed December's employment report, which showed slower hiring but fewer signs of accelerating job losses.
Why Are Consumers Feeling Less Pessimistic?
Sentiment improved for the second straight month, with gains concentrated among lower-income households.
Joanne Hsu, Surveys of Consumers director, said improvements in January were seen among lower-income consumers, while sentiment declined among higher-income households.
She added that consumers "continue to be focused primarily on kitchen table issues, like high prices and softening labor markets."
Hsu indicated that worries about tariffs appeared to be "gradually receding," but consumers remained "guarded about the overall strength of business conditions and labor markets."
Even with the recent gains, sentiment remains nearly 25% below its level from January last year.
Labor Market Still Matters
That caution lines up with December's jobs report, which painted a picture of a low-hiring, low-firing economy.
Employers added 50,000 jobs in December, below expectations of 60,000, while the unemployment rate dipped to 4.4%, below the predicted 4.5%.
Job growth averaged just 49,000 per month in 2025, down sharply from 168,000 per month in 2024.
Bill Adams, chief economist at Comerica Bank, said the December report was "so-so," capping a disappointing year for the labor market.
He said employers added fewer jobs than expected and that job growth slowed sharply last year. Adams said headwinds from tariffs, government cuts, housing weakness and artificial intelligence adoption weighed on hiring.
Adams added December's data would likely be "good enough for the Fed to hold rates steady at their next decision."
Peter Williams of 22V Research said the December jobs report showed a stagnant labor market but little evidence of rapid deterioration.
He indicated that the household survey was "the more optimistic survey this month," noting the unemployment rate dipped to 4.38%, which he said should "substantially reduce fears of a looming or just beginning nonlinear easing in the labor market."
Wall Street Flirts With Record Highs
U.S. stocks pushed higher as the December jobs report bolstered expectations for rate cuts later this year.
The S&P 500 – as tracked by the Vanguard S&P 500 ETF (NYSE:VOO) – rose 0.6% to match prior record highs hit earlier this week.
The Dow Jones – tracked by the SPDR Dow Jones Industrial Average (NYSE:DIA) – also rose 0.5% to 49,490 points, approaching all-time highs.
The tech-heavy Invesco QQQ Trust (NASDAQ:QQQ) – which tracks the Nasdaq 100 – outperformed, up 0.8%, yet it remains nearly 2 percentage points below its late-October record peak.
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