The preliminary University of Michigan consumer sentiment index is down 1.5 points to 77.9 in April to its lowest reading in five months, and below the 63.5 in April 2023. The April index is below the consensus of 79.0 in the Econoday survey of forecasters. The change from the prior month reflects a substantial weakening in perceptions of current conditions while the six-month outlook is little changed. Consumers are likely reacting in the near term to the news that progress in fighting inflation seems stalled and that the prospect of lower interest rates is more remote. However, the strength in the labor market and general economic conditions for six months from now seems to be relatively more hopeful and hasn't lost the lift it got about four months ago. Consumers remain sensitive to any hint that prices are escalating again but the underlying albeit uneven trend is for improved confidence compared to this time last year.

The current conditions index is down 3.2 points to 79.3 in April after 82.5 in March, but well above the 68.2 in April 2023. The most likely culprit for the dip in present confidence is an uptick in gasoline prices. The expectations index is down a scant 0.4 point to 77.0 in April after 77.4 in March, and substantially higher than the 60.5 in April 2023. The expectations index has a slightly heavier weight (about 60 percent) in calculating the overall index.

The increase in gasoline prices probably accounts for the increase in the 1-year inflation expectations measure to 3.1 percent in April after 2.9 percent in March. It is the highest since 3.1 percent in December 2023. The 1-year inflation expectations measure is much lower than the 4.6 percent in April 2023. The 5-year inflation expectations measure more consistent with what the Fed thinks of as the medium term for price stability is up to 3.0 percent in April after up 2.8 percent in March, and the same as the 3.0 percent in April 2023. Fed policymakers will read the 5-year measure as a sign that consumers are confident that the FOMC will bring inflation down over time toward the 2 percent inflation objective, although the 1-year measure suggests the road is bumpy.

After ratcheting to multi-year highs this year, consumer sentiment in the first indication for April is expected to hold steady at 79.0 versus 79.4 in 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.