Confirming the month's preliminary reading as well as Tuesday'c consumer confidence report, consumer sentiment ends December at 69.7, far above November's 61.3 to indicate significant improvement.

Current conditions improved 5 points to 73.3 but it's the assessment of future conditions that leads December's gain, up 10.6 points to 67.4 and likely reflecting expectations for both lower interest rates as well as lower inflation.

Year-ahead inflation expectations cooled if not chilled in December, falling 1.4 percentage points from November to 3.1 percent for the most favorable reading since March 2021. The five-year reading, at 2.9 percent from 3.2 percent, remains especially subdued.

Consumer sentiment is expected to end December at 69.4, unchanged from the mid-month flash and sharply higher than November's 61.3. Year-ahead inflation expectations are expected to hold at the mid-month's 3.1 percent which was dramatically lower from November's 4.5 percent.

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.