U.S. consumer sentiment declined from last month and came in just below expectations, with August's final reading coming in at 58.2 vs. 61.7 in July and 60.7 in June. This compares to the consensus of 58.6 in the Econoday survey of forecasters.

The rise in pessimism is no longer due to just inflation, with growing concerns about employment now in the mix.

"Buying conditions for durable goods subsided to their lowest reading in a year, and current personal finances declined 7%, both due to heightened concerns about high prices, the report said. Expectations for business conditions and labor markets contracted in August as well.

That said, expectations for personal finances held steady this month, albeit at relatively subdued levels relative to a year ago," it added.

The final year-ahead inflation expectations rebounded to 4.8 percent in August from 4.5 percent in July, breaking the streak of two straight months of receding near-term inflation expectations.

Long-run inflation expectations in August also rose to 3.5 percent from 3.4 percent last month, ending a run of three consecutive monthly declines.

The final University of Michigan index is expected unrevised at 58.6.

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.