The preliminary University of Michigan consumer sentiment index for March comes in at 63.4 after the final reading of 67.0 in February. The level is below the consensus of 67.0 in an Econoday survey. Early March sees diminished confidence in both the present and for six months from now. The report noted this was the first decline in sentiment in four months.

The index of current economic conditions is down to 66.4 in March from 70.7 in February. The index of consumer expectations is down to 61.5 in March from 64.7 in February. Inflation continues to inform consumers' outlook. Consumers see consistently high prices in the near term especially for nondiscretionary spending on things like food, gasoline, and housing as well as concerns about inflation lingering and the US economy slowing in the near future.

However, the measures of inflation expectations suggest some improvement in upward price pressures. The one-year inflation expectations reading is down 3 tenths to 3.8 percent in early March. This was the lowest since 4.4 percent in April 2021. The five-year measure dips 1 tenth to 2.8 percent in early March. Inflation expectations for the medium term are fairly steady and seem to be holding below the 3.0 percent mark for the past four months.

Fed policymakers will welcome signs of moderation in inflation expectations, but will not let up on raising interest rates until inflation measures are sustainably moving toward the Fed's 2 percent target. Today's report leaves Econoday's Consensus Divergence Index at 8 overall and at zero when excluding prices, both indicating that data on the whole are coming in as forecast.

Consumer sentiment is expected to hold steady at a depressed 67.0 in the first reading for March.

The University of Michigan's Consumer Survey Center questions households each month on their assessment of current conditions and expectations of future conditions. Preliminary estimates for a month are released at mid-month and are based on about 420 respondents. Final estimates are released near the end of the month and are based on about 600 respondents.

The pattern in consumer attitudes and spending is often the foremost influence on stock and bond markets. For stocks, strong economic growth translates to healthy corporate profits and higher stock prices. For bonds, the focus is whether economic growth goes overboard and leads to inflation. Ideally, the economy walks that fine line between strong growth and excessive (inflationary) growth.

This balance was achieved through much of the nineties and, in large part because of this, investors in the stock and bond markets enjoyed huge gains. It was during the late nineties that the consumer sentiment index hit its historic peak, reaching levels that were never matched during the subsequent 2001 to 2007 expansion nor during the long expansion following the Great Recession.

Consumer spending accounts for more than two-thirds of the economy, so the markets are always dying to know what consumers are up to and how they might behave in the near future. The more confident consumers are about the economy and their own personal finances, the more likely they are to spend. With this in mind, it's easy to see how this index of consumer attitudes gives insight to the direction of the economy. Just note that changes in consumer confidence and retail sales don't move in tandem month by month.