If markets needed a dovish offset for a warm US jobs report, a meaningful deceleration in inflation expectations might fit the bill.

Although I personally doubt the overshoot on November’s headline pace of hiring in the US changed the macro narrative, there was some consternation that the incrementally robust read on the labor market could give the Fed cause to push back on 2024 rate cut speculation more aggressively.

Of course, that sort of speculation is contingent on inflation, and in that regard, a drop in consumers’ price growth expectations in the preliminary read on University of Michigan sentiment for December was good news.

Recall that longer run expectations in the survey jumped to 3.2% in November. That was the lone blight on an otherwise favorable month of disinflationary data out of the world’s largest economy. In early December, those expectations receded to 2.8%.

As a reminder: This series matters. Indeed, it was an overshoot on longer run Michigan inflation expectations in June of 2022 which, along with a hot CPI report, prompted the Fed to escalate rate hikes to 75bps.

The 0.4% drop from November to December was the largest month-to-month decline in longer run price growth expectations since March of 2009, when the S&P bottomed during the financial crisis, and it was accompanied by a veritable plunge in year-ahead expectations.

Consumers’ price growth outlook for the next 12 months tumbled from 4.5% in November to 3.1% in early December, a remarkable drop.

Although falling gas prices surely played a role, the declines may also be indicative of the extent to which news flow drives sentiment. The media was awash over the past two weeks in stories heralding softer inflation outcomes.

The current read on year-ahead expectations is the lowest since March of 2021 and is just a tick away from falling into the pre-pandemic range (2.3-3.0%). The 2.8% read on long-term expectations matched the second-lowest print since summer of 2021.

Not surprisingly, sentiment improved. In fact, the headline print, at 69.4, topped the highest estimate by more than five points. The range, from more than four-dozen economists, was 60.8 to 64.0. December’s gain erased the entirety of a four-month drop.

The markedly better mood among Americans was “primarily” attributable to “improvements in the expected trajectory of inflation,” survey director Joanne Hsu said Friday.

The sentiment expectations index jumped nearly 10 points from November. The current conditions gauge improved as well. “All five index components rose this month, led by surges of over 24% for both the short and long run outlook for business conditions,” Hsu went on. “There was a broad consensus of improved sentiment across age, income, education, geography and political identification.”

Coming full circle, the big improvement in the inflation outlook among consumers might take some of the heat out of the jobs report, although CPI will have the final say ahead of the December FOMC meeting next week.

As far as the Michigan survey itself, “Goldilocks” (that most clichéd of all macro memes) felt apt.