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Economy in Brief

U.S. Consumer Sentiment Lowest Since 1992
by Tom Moeller October 28, 2005

The October reading of consumer sentiment from the University of Michigan settled at 74.2. That was down marginally from the mid-month reading of 75.4 but it was down 3.5% from September which fell 13.7% from August. Consensus expectations had been for improvement to 76.0 and the latest was the lowest reading since October 1992.

During the last ten years there has been a 78% correlation between the level of consumer sentiment and the y/y change in real consumer spending.

The current conditions index fell 7.0% m/m (-12.3% y/y) for the third consecutive sharp monthly decline. Consumers' opinion of the government's economic policy fell to its lowest since 1996 and the read of personal finances fell 6.8% m/m (-14.3% y/y), a significant deterioration from the mid-month read.

Consumer expectations fell just 0.2% after two months of double digit decline. Expected personal finances fell 2.6% (-11.8% y/y) and expected business conditions during the next five years fell 5.3% (-25.8% y/y).

The mean expected inflation rate for the next twelve months was stable at 5.5% and that was a slight nudge up from the 5.4% expectation at mid-month. The mean expected rate of inflation of 3.8% during the next five to ten years is the highest since 1997.

The University of Michigan survey is not seasonally adjusted.The mid-month survey is based on telephone interviews with 250 households nationwide on personal finances and business and buying conditions. The survey is expanded to a total of 500 interviews at month end.

University of Michigan Oct Sept Y/Y 2004 2003 2002
Consumer Sentiment 74.2 76.9 -19.1% 95.2 87.6 89.6
   Current Conditions 91.2 98.1 -12.3% 105.6 97.2 97.5
   Expectations 63.2 63.3 -24.6% 88.5 81.4 84.6
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