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Economy in Brief

Michigan Consumer Sentiment Gauge Rebounds Sharply on Optimistic View of Business Conditions & Personal Finances
by Carol Stone January 19, 2007

The University of Michigan's preliminary reading of consumer sentiment this month jumped from December's 91.7 to 98.0 (Q1 1966 = 100). This contrasted sharply with forecast expectations for only a modest rise to 92.0-92.5.

Both current conditions and expectations contributed to the rise in overall sentiment. Current conditions increased to 112.5 from December's 108.1 and expectations to 88.7 from 81.2.

Among various sectors in the survey, the most dramatic increase occurred in respondents' assessment of "current business conditions". This reading rose from 101 in December to 119 this month. The proportion perceiving "better" conditions gained 9 points while those perceiving "worse" conditions fell by a like amount. People generally believe this will continue as the reading on "expected business conditions" rose to 106 from 101.

Personal financial conditions also look better. "Current personal finances" went up from 119 to 124 as more people feel "better off". The proportion feeling "worse off" declined a bit. Notably, neither of these changes is due to a corresponding assessment of income. The same number as in December reported higher incomes and the number with falling incomes actually increased by 1 point. Fewer people did report that they are experiencing rising prices, which sounds like a good explanation, except that the expected inflation rate ticked higher. Over the next year, people look for a mean inflation rate of 3.6% versus 3.5% reported last month and a median of 3.0% versus 2.9%. Over the longer five- to 10-year span, people look for 3.5% inflation on average, up from 3.4% in December, with the median pace steady at 3.0%.

Assessment of government policy and performance rose after December's decline. The opinion of government was 94 against December's 89. The number of respondents believing government is doing a good job was unchanged at 20, but the number expressing the view of a poor job fell from 31 to 26.

The University of Michigan survey is not seasonally adjusted.This mid-month survey was based on telephone interviews with about 340 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 January (Prelim.) December Y/Y 2006 2005 2004
Consumer Sentiment 98.0 91.7 7.5% 87.3 88.6 95.2
   Current Conditions 112.5 108.1 2.0% 105.1 105.9 105.6
   Expectations 88.7 81.2 12.4% 75.9 77.4 88.5
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