The University of Michigan Consumer Sentiment Survey slipped to 88.4 in March, down from February’s 91.3 and its lowest level in six months.

Why should you care about the UofM survey? In a nutshell, you shouldn’t. But, you sort of have to.

Here’s why: Consumer confidence is considered important by markets because hundreds of “real people” are telling the surveyors how they feel about the economy.

Because the surveyed people are the “word on the street”, economists can get a better glimpse into how the economy is likely to perform in the near-term.

For example, if people are feeling good about their personal finances, they are more likely to spend more and propel the economy forward. The reverse is also true. If they feel uneasy about their personal finances, they will curtail spending and pull the economy back.

But, confidence surveys can be worthless because what people say and what they do are often two very different things.

On the heels of today’s UofM survey, the Commerce Department released the Personal Spending report.

We would expect that the falling University of Michigan confidence numbers would translate into lower levels of Personal Spending. On the contrary! Personal Spending was up by whopping 0.6%. People are less confident about the economy, but are still choosing to spend more.

Mortgage markets are mixed on today’s data and mortgage rates are relatively unchanged.

Ben Bernanke delivered a prepared speech to the congressional Joint Economic Committee Wednesday in which he stated that inflation is “somewhat elevated”, but that it’s no reason to expect a Fed Funds Rate hike anytime soon.

Some of Chairman Bernanke’s more salient points:

1. Economic growth has slowed because of a “substantial correction” in the housing market
2. Sub-prime industry problems are self-contained (so far)
3. Business spending will pick up this year
4. Consumer spending will propel the economy forward
5. Inflation is down largely because of energy costs are down

In other words, there are multiple reasons why inflation is higher than desired and even Bernanke admitted that there are upside and downside risks to each of these points. As a result, markets had a hard time digesting the text.

Immediately following his speech, mortgage rates improved, but by the end of the day, rates had swung back to unchanged.

Oil prices are down since last year overall, mostly because the political risk has been removed from pricing.

Last night, though, a rumored Iranian attack on a U.S. ship in the Persian Gulf showed how quickly markets can flip if oil supply is threatened.

Immediately, the political risk of tightened oil supply found its way into the price of oil.

Within minutes of the rumor, oil prices jumped more than $5 per barrel to cross the $68 level. Only after the U.S. military refuted the story did prices retreat.

Higher oil prices create higher costs for Americans in many facets of life including gasoline bills, heating and cooling costs, and energy bills.

Higher oil prices increase costs on business and consumers and that is considered to be inflationary, which generally leads to higher mortgage interest rates.

The pie chart at right comes from a Bankrate.com survey, sampling 1,000 adults about their current housing situation.

The question asked: What type of mortgage do you currently have?

While the 34% “Don’t Know” figure is troubling, even more frightening is the 6% “ARM” figure.

The sample size was small, but far more than 6% of homeowners carry adjustable rate mortgages. Some of the survey responders may have mistaken their “5-year fixed rate mortgage” for a true fixed rate mortgage — even though they are aware that the rate can change after 60 months.

According to the Federal Reserve, ARM holders tend to be unaware of how often their home loan can adjust, the maximum interest rate to which it can adjust, or even the rules by which the new, adjusted interest rate is calculated. That all can lead to financial stress in a household.

If you own a home, you need to understand the basic structure of your own mortgage the same way that you need to balance your checkbook each month. Even if you have a fixed rate mortgage — you may be mistaken, after all.

It’s never too late to look over your mortgage statement or reviewing your closing documents. If you don’t know how to interpret what you’re reading, get help from a professional.