U.S. consumer sentiment saw very little change from last month and came in slightly above expectations, with July's preliminary reading coming in at 61.8 vs. 60.7 in June and 52.2 in May. This is just above the consensus of 61.4 in the Econoday survey of forecasters.

The rebound still has a long way to go, however, and remains well off the heights reached following the November 2024 elections.

"Consumers are unlikely to regain their confidence in the economy unless they feel assured that inflation is unlikely to worsen, for example if trade policy stabilizes for the foreseeable future, the report said. At this time, the interviews reveal little evidence that other policy developments, including the recent passage of the tax and spending bill, moved the needle much on consumer sentiment."

The preliminary year-ahead inflation expectations again declined significantly to 4.4 percent in July from 5.0 percent in June.

Long-run inflation expectations in July fell to 3.6 percent from 4.0 percent last month, the third consecutive monthly decline.

Sentiment expected up slightly to 61.4 in the first reading for July from 60.7 in the June final. One-year inflation expectations are seen flat at 5.0 percent with a range of 4.7 percent to 5.2 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.