The University of Michigan consumer sentiment index is up to 79.6 in the preliminary February report after 79.0 in the final January data. The index is above the 67.0 in February 2023. The February 2024 reading is just below the consensus of 80.0 in the Econoday survey of forecasters. The February number is the highest since 81.2 in July 2021. The recovery in consumer confidence from the record low of 59.2 in May 2023 indicates that consumers are no longer as worried about inflation and the economic outlook.

The index for current conditions is essentially unchanged at 81.5 in February from 81.9 in January when the index was the highest since 84.5 in July 2021. The expectations index is up to 78.4 in February from 77.1 in January. Expectations are the highest since 78.0 in July 2021.

The 1-year inflation expectations measure is up a tenth to 3.0 percent in February from January. The change is insignificant and probably reflects higher gas prices. However, expectations remain the among lowest since late 2020 and early 2021. The 5-year inflation expectations measure is unchanged at 2.9 in February from 2.9 in January and December. Overall the 5-year expectations are consistent with the Fed getting inflation under control, although not quite as low as pre-pandemic levels.

Consumer sentiment in the first indication for February is expected to rise 1 point to 80.0. Sentiment in the months of January and December rose 9.3 and 8.4 points for the greatest 2-month surge since the end of the 1991 recession.

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.