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Economy in Brief

U.S. Consumers' Funk Didn't Deepen in Late May
by Tom Moeller May 26, 2006

The University of Michigan reported that for all of May, consumer sentiment held steady at the preliminary level indicated two weeks ago. Nevertheless, sentiment fell 9.5% m/m to 79.1, the lowest level since last October. Consensus expectations had been for some improvement to 79.4.

During the last ten years there has been a 77% correlation between the level of consumer sentiment and the y/y change in real consumer spending.

Expectations for the economy dropped 7.1% m/m as higher gasoline prices boosted the twelve month mean expected inflation rate to 4.7% versus 3.6% expected in February. That dragged expectations for personal finances down 10.4% m/m and expected business conditions down 5.8%.

The current conditions index fell 12.0% m/m, the same as the mid-month read. The current index of personal finances dropped 14.3% (-6.4% y/y) and the reading of buying conditions for large household goods dropped 10.9% (-9.8% y/y).

Consumers' assessment of gov't economic policy fell 8.3% m/m (-10.5% y/y) and is at nearly half the level of early 2000.

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 May (final) May (prelim. April Y/Y 2005 2004 2003
Consumer Sentiment 79.1 79.0 87.4 -9.0% 88.6 95.2 87.6
   Current Conditions 96.1 96.2 109.2 -8.4% 105.9 105.6 97.2
   Expectations 68.2 68.0 73.4 -9.4% 77.4 88.5 81.4
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