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Economy in Brief

U.S. Consumer Sentiment Rose As Inflation Expectations Fell
by Tom Moeller September 29, 2006

Consumer sentiment for all of September improved, according to the University of Michigan. The full month reading recouped all an August decline and rose 4.1% to 85.4, up from a mid-month read of 84.4. Consensus expectations had been for an increase to 85.2.

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.

Expected inflation during the next year fell sharply to 3.6% from 4.6%, its lowest level since February. The full month figure was unchanged from the preliminary read. The five to ten year expected rate of inflation also fell to 3.2%, reversing all of the rise during August.

Expectations for the economy surged 15.0% m/m to the highest level since January. Expected business conditions next year rose by nearly one third and over the next five years they improved sharply for the third month. The expected change in personal finances also firmed quite a bit and reversed all of the prior month's steep decline.

The reading of current economic conditions fell sharply m/m but did improve late in the month so that the figure was the lowest since June. The current read of personal finances fell for the third consecutive month (-3.9% y/y) and perceived buying conditions for large household goods fell sharply (0.0% y/y).

Consumers' opinion about gov't economic policy was unchanged for the third month (0.0% y/y).

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.

Making the Systematic Part of Monetary Policy Transparent from the Federal Reserve Bank of Richmond is available here.

University of Michigan September August Y/Y 2005 2004 2003
Consumer Sentiment 85.4 82.0 11.1% 88.6 95.2 87.6
   Current Conditions 96.6 103.8 -1.5% 105.9 105.6 97.2
   Expectations 78.2 68.0 23.5% 77.4 88.5 81.4
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