Consumer sentiment improved slightly in January to reach the highest level since September, but remains generally downbeat as fears over rising prices and a softening labor market continue to weigh on American workers.

The University of Michigan's preliminary Index of Consumer Sentiment for January came in at 54.0, up 1.1 from December's reading of 52.9 but some 25% below last year's level of 71.7. This rise beat forecasts, with data from Bloomberg showing economists expected this report to push the index up to a more modest 53.5.

"This month's increase was pretty modest, so consumers appeared to see some improvement over the last couple of months," Joanne Hsu, director of the survey of consumers, told Yahoo Finance over the phone. "They're still seeing a bit of weakness in the economy going forward, particularly in terms of labor markets."

Hsu added that similar to December, a majority of Americans expect unemployment to rise this year. The latest jobs data from the Bureau of Labor Statistics published Friday showed the unemployment rate in December stood at 4.4%, down from a four-year high of 4.6% previously set in November.

Read more: What is consumer confidence, and why does it matter?

"[Consumers] continue to be focused primarily on kitchen table issues, like high prices and softening labor markets," Hsu said in a statement.

"Although consumers' worries about tariffs appear to be gradually receding, they remain guarded about the overall strength of business conditions and labor markets," she added.

Overall, Americans still think prices will increase this year, with year-ahead inflation expectations holding steady in January at 4.2%.

Brooke DiPalma is a reporter for Yahoo Finance. Follow her on X at @BrookeDiPalma or email her at bdipalma@yahoofinance.com.

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