The preliminary University of Michigan consumer sentiment index for June is down to 65.6 after a final 69.1 in May. This is its lowest level since 61.3 in November 2023 and well below the consensus of 73.0 in the Econoday survey of forecasters. Most of the decline in June is reflected in perceptions of current conditions, while expectations for about six months from now have not changed much from the prior month.

The current conditions index is down to 62.5 in June from 69.6 in May for its lowest since 59.4 in December 2022. Consumers are clearly more concerned about inflation again and disappointed that the outlook for lower interest rates puts the possibility at a greater distance. Consumers are also likely facing heightened awareness of the election cycle and an intensification of an already ugly political climate during the various campaigns at local, state, and federal levels.

The expectations index is down to 67.6 in June after 68.8 in May. It is the lowest since 67.4 in December 2023. Consumers are a little more worried about the geopolitical situation and the performance of the US economy, but on the whole the solid labor market is keeping worries in check.

Although it should be said that inflation expectations on the part of consumers have not become unanchored, these are a little more elevated and point to anticipation of a longer fight to get inflation under control than thought just a few months ago. Preliminary 1-year inflation expectations are unchanged at 3.3 percent from May while the preliminary 5-year reading is up a tenth to 3.1 percent. Both are the highest since 3.2 percent in November 2023.

In the first indication for June, consumer sentiment is expected to recover to 73.0 versus May's 69.1 and April's 77.2. Inflation expectations for a year ahead are seen at 3.2 percent in June, down from 3.3 percent in May.

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.