The University of Michigan consumer sentiment index for April is revised slightly lower to 77.2 in the final reading. The index is somewhat below the consensus of 77.9 in the Econoday survey of forecasters. While the index for current conditions is revised down 3 tenths to 79.0 in the final April report, the expectations index is down a full point to 76.0.

Overall consumer sentiment has remained in the mid- to upper-70s for the past four months. Consumer optimism is weighed down by the apparent lack of progress on the inflation front and worrisome geopolitical news, but this is offset by the health of the labor market and prospects for employment and earnings.

The 1-year inflation expectations measure is up 3 tenths 3.2 percent in April after 2.9 percent in March. It probably reflects the recent increases in energy costs and the uptick in interest rates now that prospects of a Fed rate cut have retreated. The 5-year inflation expectations measure is up 2 tenths to 3.0 percent in April and is its highest since 3.2 percent in November 2023. Both indexes remain within the range of readings over the past year or so. To all appearances inflation expectations are anchored. However, Fed officials will note that the consistency of readings points to inflation expectations that remain above the 2 percent flexible average inflation target.

Consumer sentiment is expected to hold unchanged in the final for April at the preliminary reading of 77.9 which was down from 79.4 in March. Year-ahead inflation expectations for final April are seen unchanged at the 3.1 percent reading of the month's preliminary report.

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.