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Economy in Brief

U.S. Consumer Sentiment Firmed in Late August
by Tom Moeller September 1, 2006

Consumer sentiment in late August firmed enough to limit the m/m decline for the full month to 3.2%, according to the University of Michigan. The full month reading of 82.0 compared favorably to Consensus expectations for a decline to 79.0.

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 and during those ten years sentiment has a 68% correlation with the change in nonfarm payrolls.

Expectations for the economy slipped 6.2% m/m. Expected 12 month business conditions and the expected change in personal finances fell sharply to the lowest levels since November.

The reading of current economic conditions rose modestly m/m by 0.3%. The current read of personal finances slipped but perceived buying conditions for large household goods rose.

Consumers' opinion about gov't economic policy was unchanged m/m (-3.5% y/y) after sharp improvement during July. Expected inflation during the next year surged m/m to 4.6%, its highest level since May. The five to ten year expected rate of inflation also rose to 3.5%, its highest since May.

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 August (Final) August (Prelim) July Y/Y 2005 2004 2003
Consumer Sentiment 82.0 78.7 84.7 -8.0% 88.6 95.2 87.6
   Current Conditions 103.8 100.8 103.5 -4.1% 105.9 105.6 97.2
   Expectations 68.0 64.5 72.5 -11.6% 77.4 88.5 81.4
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