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Economy in Brief

U.S. Consumer Sentiment Slipped
by Tom Moeller November 9, 2006

The University of Michigan's preliminary reading of consumer sentiment during November slipped 1.4% from October to 92.3 after that month's 9.6% jump. The decline slightly exceeded Consensus expectations for a decline to 93.3.

During the last ten years there has been a 76% 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 retraced 1.9% of the prior month's 8.4% m/m surge due to a lessened expected change in personal finances which retraced all of October's gain (+5.2% y/y). Expected business conditions next year added slightly (38.6% y/y) to the sharp gains of the prior two months and over the next five years also rose a firm 1.0% (22.5% y/y) to the highest since July 2005.

The reading of current economic conditions slipped 0.7% as the current read of personal finances fell 0.8% (+13.6% y/y) and perceived buying conditions for large household goods fell 0.6% (+1.3% y/y.

Expected inflation during the next year fell to 3.4%, the lowest since early 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 also fell m/m to 3.3%.

Consumers' opinion about gov't economic policy improved 2.3% (7.2% 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.

University of Michigan November (Prelim.) October Y/Y 2005 2004 2003
Consumer Sentiment 92.3 93.6 13.1% 88.6 95.2 87.6
   Current Conditions 106.5 107.3 6.3% 105.9 105.6 97.2
   Expectations 83.2 84.8 19.5% 77.4 88.5 81.4
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