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Economy in Brief

U.S. Consumer Sentiment Recovered Some
by Tom Moeller December 22, 2006

The University of Michigan's full month reading of consumer sentiment in December slipped 0.4% to 91.7, but that was less than the 2.1% drop in the preliminary report. Consensus expectations for a reading of 90.2.

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.

Consumer expectations for the economy improved from the preliminary read but they still fell 2.4% for the second consecutive monthly decline. Business conditions during the next twelve months fell 6.3% (+1.0% y/y) and long term expected business cosnditions were unchanged for the second month (+10.2% y/y). Expected personal finances slipped for the second consecutive month (-3.9% y/y).

The reading of current economic conditions actually improved 2.0%, about the same as in the preliminary report. Perceived buying conditions for large household goods rose 3.2% (-1.8% y/y) but perceptions of current personal finances were unchanged (0.0s% y/y).

The reading of whether it's a good time to buy house fell m/m but remained up from the lows this past Summer.

Expected inflation during the next year increased to 3.5% but for the next five years expected inflation fell to 3.4%. Since 1980 there has been an inverse 63% correlation between the level of sentiment and expected inflation during the next year.

Consumers' opinion about gov't economic policy slipped m/m to just 89 versus a midmonth read of 86.

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 December (Final) December (Prelim. November Y/Y 2006 2005 2004
Consumer Sentiment 91.7 90.2 92.1 0.2% 87.2 88.6 95.2
   Current Conditions 108.1 108.2 106.0 -0.9% 105.1 105.9 105.6
   Expectations 81.2 78.6 83.2 1.2% 75.7 77.4 88.5
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