The University of Michigan consumer sentiment index is revised higher to 70.1 in the final report for September, up from 69.0 in the preliminary estimate and 67.9 in the final August report. The index was 67.9 a year ago. The final September reading is above the consensus of 69.0 in the Econoday survey of forecasters. The indexes for current and future conditions are both revised up. Consumers likely responded to signs that borrowing costs are coming down and that although hiring is slowing, layoff activity isn't increasing.

The index for current conditions is 63.3 in September, up from 61.3 in August, but below 71.1 a year ago. The hot job market with its solid wage increases has now cooled to something near normal for an economy in modest expansion. The expectations index is up to 74.4 in September after 72.1 in August and above 65.8 in September 2023. Concerns about a recession are lower and optimism that inflation is gradually improving is higher.

The one-year inflation expectations measure is at 2.7 percent in September, its lowest since 2.5 percent in December 2020. Consumers are seeing less upward price pressure on household commodities, especially energy costs. The five-year inflation expectations measure is 3.1 percent in September, the highest since 3.1 percent in May 2023. Consumers continue to project that over the medium term, prices will continue to rise a bit above the Fed's 2 percent inflation objective, although the underlying trend is stable in a narrow range right around the 3-percent mark.

Consumer sentiment is expected at 69.0 for final September versus the preliminary reading of 69.0 which was up 1.1 points from August. Year-ahead inflation expectations for final August are expected at 2.7 percent, unchanged from the 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.