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Economy in Brief

U.S. Consumers' Spirits Rose Further as Inflation Expectations Fell
by Tom Moeller June 30, 2006

Consumer sentiment during all of June improved 7.3% from the prior month to 84.9 according to the University of Michigan. The increase recovered most of a 9.5% slump during May, built on the rise that was reported earlier and exceeded Consensus expectations for a reading of 82.5.

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.

The reading of current economic conditions rose 9.3% as the index of current personal finances rose 10.8% (-7.4% y/y). Buying conditions for large household goods were judged to be 8.2% better (-7.6% y/y) than during May.

Expectations for the economy rose for just the second month this year. The 5.6% June gain reflected an 8.6% rise in business conditions expected during the next year. But long term (5 year) expectations for business conditions fell for the fourth month in the last five (-23.3% y/y). Consumers' opinion about gov't economic policy fell 3.9% m/m (-20.4% y/y).

Expected inflation during the next year slipped modestly to 4.4% and the five to ten year expected rate of inflation also fell to 3.5%.

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 June (Final) June (Prelim.) May Y/Y 2005 2004 2003
Consumer Sentiment 84.9 82.4 79.1 -11.6% 88.6 95.2 87.6
   Current Conditions 105.0 103.1 96.1 -7.2% 105.9 105.6 97.2
   Expectations 72.0 69.2 68.2 -15.3% 77.4 88.5 81.4
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