The preliminary University of Michigan consumer sentiment index fell 5.1 points to 63.0 for October after 68.1 in September. This is the lowest reading since 59.2 in May. The reading was well below the consensus of 67.5 in the Econoday survey of forecasters. The decline reflects a fall in confidence for both current conditions and the near future. Consumers are likely reacting to higher energy prices at present and geopolitical events for conditions six months from now.

The current conditions index is down 4.7 points to 66.7 in early October to the lowest since 64.9 in May. The expectations index is down 5.3 points to 60.7 in October, the lowest since 55.4 in May. Consumers appear to be feeling the pinch of rising household energy prices, and are more concerned that inflation will remain elevated and that the labor market will soften in the coming months.

The preliminary 1-year inflation expectations measure is up 6 tenths to 3.8 percent in October to its highest since 4.2 in May. The 5-year inflation expectations measure is up 2 tenths to 3.0 percent but remains in line with the narrow range of readings in the past year. Inflation expectations for the medium term are still anchored, if above the Fed's 2 percent flexible average inflation target. Fed policymakers will remain hawkish on inflation and ready to raise rates to combat it, if necessary.

Consumer sentiment in the first indication for October, which in September fell 1.4 points to 68.1, is expected fall further to 67.5.

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.