The University of Michigan consumer sentiment index is revised notably higher to 69.1 in the final report for May after 67.4 in the preliminary reading. The final index for May is above the consensus of 67.4 in the Econoday survey of forecasters. However, the index is below April's final reading of 77.2 but above 59.0 in May 2023. The May upward revision reflects improvement in both current conditions and expectations for the near future.

The May current conditions index is revised up to 69.6 in May from the preliminary 68.8, but is a little under 79.0 in April and above 64.9 in May 2023. The 6-month expectations index is revised up to 68.8 in May after the preliminary 66.5, but is under 76.0 in April and above 55.4 in May 2023.

Overall, consumers' confidence has declined for the past two months and is at its lowest since 61.3 in November 2023. However, the May index for current conditions suggests that the dip in confidence for the near term has mostly stabilized. It is in expectations for the economy about six months from now that have turned sour. It probably isn't a stretch to say that consumers are not looking forward to the contentious presidential election season and another round of uncertainty generated around the election itself.

If the geopolitical outlook is gloomier, the inflation outlook is not worsening. The 1-year inflation expectations measure is 3.3 percent in May, revised down from the preliminary 3.5 percent. It is up a tenth from 3.2 percent in April and well under 4.2 percent in May 2023. While it is the highest since November, the increase is small and may be due to transient factors like energy prices. On the other hand, the 5-year inflation expectations measure is unchanged at 3.0 percent in May from April and remains in line with readings for the past 18 months. Fed policymakers will not be immediately concerned about how consumers view inflation over the medium term with a solidly anchored trend.

Consumer sentiment is expected at 67.4 for final May, unchanged from the far lower-than-expected preliminary reading. Year-ahead inflation expectations for final May are seen at 3.5 percent, also unchanged from the preliminary reading and much higher than 3.2 percent in April.

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.