Americans are feeling increasingly better on inflation, as shown in the University of Michigan's consumer sentiment survey. Consumers are now hopeful that inflation will fall to 3.1% within a year.

Yahoo Finance Markets Reporter Josh Schafer breaks down the latest consumer sentiment print and consumers' economic outlook following this morning's promising jobs report.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

This post was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: Americans are feeling increasingly better about inflation.

Consumers expect inflation to sit at 3.1% a year from now.

That's a big decline from last month's 4.5%.

That's according to the latest consumer sentiment survey from the University of Michigan.

Yahoo Finance's Josh Schafer joins us to break it all down.

Josh.

JOSH SCHAFER: Josh, pretty good vibe-- JULIE HYMAN: Yes.

JOSH SCHAFER: --in the economy right now, right?

JULIE HYMAN: That's all I want.

JOSH SCHAFER: A little bit of Josh, Josh.

And I feel like that fits the vibe that we got from some of the data today.

Well, upbeat Friday, right?

And it really-- you saw the markets turn up on this inflation reading here for consumers, what they're expecting.

And I think that's because you saw the lowest number since March 2021, 3.1%.

Pretty low, obviously, considering last month they were expecting 4.5%.

Now, this is obviously based off inflation data that we've already, kind of, seen right.

They're digressing the CPI data and the PCE data that markets had already, sort of, already taken in.

But I think, overall, when you think about what the consumer sentiment data normally means is it's a good sign for the Fed, right?

Because you want people to feel like prices are coming down.

JULIE HYMAN: Well, it's-- JOSH SCHAFER: Jerome Powell talks about that.

JULIE HYMAN: I mean, prices are self-fulfilling, as we know, both to the upside and the downside.

If you think prices are going up, you're going to be willing to pay higher prices.

If you think prices are going down, then consumers are going to put a lid on what they're willing to spend and keep prices down.

JOSH SCHAFER: Right, and so you want people to believe that inflation is actually going to be coming down, especially when you look at-- this survey also does the long-run inflation, right, 5 to 10 year.

That was at 3.2% last month.

That's down to 2.8%.

So in the long run, people also see inflation coming down, which, again, overall is good for the outlook.

And then I think broadening this out, and we think about the labor data that came out before the market opened, and we didn't see stocks up.

Then we saw this, sort of, combined with that to create this nice little soft landing narrative for us.

You've got jobs still growing, right?

Like, yes, the labor market is cooling, but overall people are still employed.

3.7% unemployment rate, no one would argue that that's not incredibly low.

And inflation coming down.

That's what the Fed wants, right?

They want us to be employed and they want us to pay less for things, Josh.

That's the overall goal here.

JOSH LIPTON: I think linking the point you brought up too, Josh, because you're, kind of, spinning ahead.

Because people are starting to think about what does actually consumer spending look like in 2024, which was interesting.

Because when you, kind of, sifted through all those earnings reports, and I think that was really a theme was not recession.

Executives weren't talking about that.

But again and again across multiple sectors and industries, you heard, well, we're getting more cautious about the consumer.

But then to your point, Josh, you look at this relatively positive sentiment reading.

You look at the jobs report, jobs are growing, wages are growing, inflation is cooling.

And you begin to understand why investors are starting to think it's rare, it's tricky, but maybe the Fed sticks that soft landing, and consumer spending is actually, sort of, OK next year.

JULIE HYMAN: Yeah.

JOSH SCHAFER: We're, sort of-- or not sort of, I was just going to point out to you we're still far away from that, right, too.

And I think that's the other takeaway we need to have from today too is, yes, we're talking about soft landing today.

You have an inflation print on Tuesday and we could be talking about a hard landing, right?

JOSH LIPTON: Yeah.

JOSH SCHAFER: And you have a Fed meeting on Wednesday and then things can start to move quickly here, too.

And that's one of the things that a lot of economists were warning about today.

Yes, soft landing right now, but you still have people projecting the unemployment rate might go up to 4.5%.

And then these kind of sentiment readings will shift a lot, right?

JOSH LIPTON: Josh, just to put the numbers you were giving us in some perspective, I thought it was interesting.

Peter Boockvar, well-known economist strategist, mensch really, I think we can say, Peter points out to his clients that the index is still 30 points below where it stood in February 2020 because that 20% pop in the cost of living is measured by CPI.

And it was just, kind of, interesting because we talk a lot about the numbers are better.

But, sort of, the doom and gloom, kind of, feeling that some people have, interesting perspective.

JOSH SCHAFER: And we're significantly off the pandemic lows, too, right?

JOSH LIPTON: Yeah.

JOSH SCHAFER: So now we're kind of in this middle ground of can we get back to what it was before the pandemic?

JOSH LIPTON: Yep.

JULIE HYMAN: Normalization, that's been the world for a while.

All right, Josh Schafer, thank you so much.