The University of Michigan consumer sentiment index is down 1.2 points to 68.9 in October after an increase to 70.1 in September and is up 5.1 points from 63.8 in October 2023. Consumers are feeling a little less certain against the backdrop of a contentious presidential election, swings in economic data, concerns about the effects of major weather events, and hopes for lower borrowing costs in the near future.

The index for current conditions for October is down 0.6 point to 62.7, very little changed from the prior month. The expectations index is down 1.5 points to 72.9 in October. These are overall small changes from the prior month, but on net indicate that any lift in confident may have to wait until the outcome of the election is known, the weather impacts are better determined, and the outlook for Fed monetary policy on a more stable path of rate cuts.

The preliminary 1-year inflation expectations measure is at 2.9 percent in October, two-tenths higher than September but still well within the narrow range of readings since the start of the year. The uptick probably reflects worries about higher energy costs due to armed conflicts in the Middle East. The 5-year inflation expectations measure is down a tenth to 3.0 in October. It has been essentially unchanged since April and continues to signal that inflation is expected to be stable over the medium term, although not at the Fed's 2 percent inflation objective.

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.