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Economy in Brief

U.S. Consumer's Sentiment Buoyant
by Tom Moeller October 13, 2006

The preliminary reading of consumer sentiment in October from the University of Michigan rose 8.1% versus last month to 92.3. That gain doubled September's 4.1% rise and lifted the level to the highest since July of last year. Consensus expectations had been for a lesser rise to 86.1.

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 further to 3.5% from 3.6% last month, its lowest level since January 2005. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year. The five to ten year expected rate of inflation actually rose to 3.6% its highest level since May.

Expectations for the economy rose 6.6% m/m to the highest level since July of last year. Expected business conditions next year improved sharply and over the next five years they improved to the highest since June 2005. The expected change in personal finances added moderately to the sharp gain during September.

The reading of current economic conditions surged nearly 10% m/m and rose to the highest level since April. The current read of personal finances (19.8% y/y) rose to the best level since April and perceived buying conditions for large household goods recouped all of the prior month's decline and rose 15.8% y/y.

Consumers' opinion about gov't economic policy rose 6.1% (11.5% y/y) after three months having been unchanged.

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.

Globalization: A Force for Good? yesterday's remarks by Fed Governor Frederic S. Mishkin are available here.

University of Michigan October (Prelim.) September August Y/Y 2005 2004 2003
Consumer Sentiment 92.3 85.4 82.0 24.4% 88.6 95.2 87.6
   Current Conditions 106.1 96.6 103.8 16.3% 105.9 105.6 97.2
   Expectations 83.4 78.2 68.0 32.0% 77.4 88.5 81.4
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