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Economy in Brief

U.S. Consumer Sentiment Improved in Late July
by Tom Moeller July 28, 2006

Consumer sentiment late this month recovered from the decline early in July. For the full month the volatility left sentiment off just 0.2% from June at 84.7, according to the University of Michigan. Consensus expectations had been for a full month reading of 83.0.

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 eased just 1.4% following a 9.3% rise during June. The index of current personal finances fell 2.7% (-9.8% y/y) and perceived buying conditions for large household goods slipped 0.6% (-8.1% y/y).

Expectations for the economy rose 0.7% led by a 1.7% (-8.3% y/y) rise in expected personal finances. Expected 12 month business conditions fell 1.1% (-22.3% y/y) but 5 year expected conditions improved.

Consumers' opinion about gov't economic policy improved a sharp 10.8% m/m (-10.9% y/y), the first monthly increase since March while expected inflation during the next year fell sharply to 3.8%, 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 July (Prelim.) June Y/Y 2005 2004 2003
Consumer Sentiment 84.7 83.0 84.9 -14.0% 88.6 95.2 87.6
   Current Conditions 103.5 100.8 105.0 -11.2% 105.9 105.6 97.2
   Expectations 72.5 71.6 72.0 -16.3% 77.4 88.5 81.4
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