U.S. consumer sentiment dipped to start 2025 the first decline in six months with the final reading coming in at 71.1 in January vs. the preliminary report of 73.2 and 74.0 in December 2024, below expectations for 73.2 in the Econoday survey of forecasters.

"While assessments of personal finances inched up for the fifth consecutive month, all other index components pulled back," the report says."[S]entiment declines were broad based and seen across incomes, wealth, and age groups."

The final year-ahead inflation expectations remained at 3.3 percent in January, surging from 2.8 percent in December. This is the highest reading since May 2024 and is above the 2.3-3 percent range seen in the two years prior to the pandemic.

Long-run inflation expectations in January were revised down slightly from 3.3 percent to 3.2 percent, up from 3 percent last month."Concerns over the future trajectory of inflation were visible throughout the interviews and were tied to beliefs about anticipated policies like tariffs," the report says.

Sentiment is expected unchanged at 73.2 in the January final from the January 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.