The final University of Michigan consumer sentiment index for October is 70.5 after 70.1 in September and 63.8 in October 2023. The October reading is above the consensus of 69.0 in the Econoday survey of forecasters. The final index is also an upward revision from the preliminary report of 68.9 in October. Overall, underlying consumer perceptions about the US economy are not much changed from the prior month. There's a slight upward momentum, but also restraint from uncertainties about the outcome of the US presidential election and if inflation is truly sufficiently tamed that the FOMC will continue to cut interest rates in the near future.

The current economic conditions index is up to 64.9 in October, the highest since 65.9 in June. Worries about the labor market going cold are less although not absent. The FOMC rate cut of 50 basis points on September 18 has meant some borrowing costs are lower but the initial optimism for further aggressive rate cuts has ebbed in financial markets and rates are rising again notably mortgage interest rates. Recent upward price pressures for some food items have also sparked renewed worries about inflation even those these are likely to have short-term effects.

The expectations index for October is down slightly to 74.1 in October after 74.4 in September but is the second firmest since 76.0 in April. The contentious presidential race is keeping consumers in a state of uncertainty, but the better news about the labor market in the past month or two and ebbing recession fears are helping to keep perceptions about the future from falling steeply.

The 1-year inflation expectations measure is 2.7 percent in October, unchanged from October when it was the lowest since 2.5 percent in December 2020. Declines in gasoline prices are probably the reason for holding at a nearly four-year low. The 5-year inflation expectations measure is 3.0 percent in October, down a tenth from 3.1 percent in September. It has been essentially unchanged since the start of the year and moving in a narrow range that suggests medium-term inflation expectations are stable, if above the Fed's 2 percent inflation objective.

Consumer sentiment is expected to reach 69.0, a slight uptick from September's 68.9. One-year inflation expectations are seen flat at 2.9 percent.

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.