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Economy in Brief

U.S. Consumer Sentiment Sagged
by Tom Moeller July 14, 2006

Consumer sentiment early this month reversed part of its June improvement and sagged 2.2% to 83.0, according to the University of Michigan. The decline ran counter to Consensus expectations for a modest increase to 85.5.

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 reversed about half of the June increase with a 4.0% decline. The index of current personal finances reversed nearly all of the prior month's rise with an 8.0% (-14.8% y/y) decline though buying conditions for large household goods fell a modest 1.3% (-8.7% y/y).

Expectations for the economy fell a modest 0.6% but it was the fifth decline his year. It was led by a 5.7% (-25.9% y/y) decline in 12 month expected business conditions although 5 year expected conditions improved modestly, the first gain in four months, as did expected personal finances.

Consumers' opinion about gov't economic policy recovered 5.4% m/m (-15.2% y/y), the first monthly increase since March while expected inflation during the next year fell sharply to 3.7%, its lowest since February. The five to ten year expected rate of inflation also fell to 3.2%, its lowest in over a year.

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 July (Prelim.) June Y/Y 2005 2004 2003
Consumer Sentiment 83.0 84.9 -14.0% 88.6 95.2 87.6
   Current Conditions 100.8 105.0 -11.2% 105.9 105.6 97.2
   Expectations 71.6 72.0 -16.3% 77.4 88.5 81.4
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