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Economy in Brief

U.S. Consumer Sentiment Improved Further, Expectations Up
by Tom Moeller September 15, 2006

Consumer sentiment in early September added to the gains of late August, according to the University of Michigan. The mid-month reading rose 2.9% to 84.4 on top of the late-August rise which limited that month's decline to 3.2%. Consensus expectations for an increase to 84.0.

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 surged 13.4% m/m to the highest level since January. Expected business conditions next year and over the next five years improved sharply. The expected change in personal finances, however, improved just moderately.

The reading of current economic conditions fell sharply m/m to the lowest level since last October. The current read of personal finances and perceived buying conditions for large household goods both fell.

Consumers' opinion about gov't economic policy was unchanged for the third month (0.0% y/y). Expected inflation during the next year fell sharply to 3.6%, its lowest level since February. The five to ten year expected rate of inflation also fell to 3.2%, reversing all of the rise during August.

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 Sept. (Prelim.) August Y/Y 2005 2004 2003
Consumer Sentiment 84.4 82.0 9.8% 88.6 95.2 87.6
   Current Conditions 95.7 103.8 -2.4% 105.9 105.6 97.2
   Expectations 77.1 68.0 21.8% 77.4 88.5 81.4
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