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Economy in Brief

U.S. Consumer Sentiment Edged Lower
by Tom Moeller November 22, 2006

The University of Michigan's full month November reading of consumer sentiment slipped 1.6% from October to 92.1, about as indicated in the preliminary report.

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.

The reading of current economic conditions fell 1.2% but the current read of personal finances improved 0.8% (+15.5% y/y) as opposed to the a slight decline reported earlier. Perceived buying conditions for large household goods fell further than initially indicated (-0.6% y/y.

Expectations for the economy were unchanged from the preliminary reading and fell 1.9% after the prior month's 8.4% m/m surge.

Expected inflation during the next year fell to 3.3%, a bit lower than the earlier read and 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 even more than initially indicated, by 5.7% (10.8% 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 November (Prelim.) October Y/Y 2005 2004 2003
Consumer Sentiment 92.1 92.3 93.6 12.9% 88.6 95.2 87.6
   Current Conditions 106.0 106.5 107.3 5.8% 105.9 105.6 97.2
   Expectations 83.2 83.2 84.8 19.5% 77.4 88.5 81.4
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