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Economy in Brief

Michigan Consumer Sentiment Fell Sharply, Fed's Discount Rate Cut
by Tom Moeller August 17, 2007

The University of Michigan's preliminary reading of consumer sentiment in August fell 7.9% m/m to 83.3. The decline was the largest m/m drop in over a year and, likewise, pulled the index to its lowest level since last August. Consensus expectations had been for a lesser decline to 87.

A 9.1% decline in consumer expectations led this month's decline in overall sentiment.

Consumers worried that business conditions during the next six months would deteriorate and the index measuring these expectations fell 14.3% (+20.0% y/y). Expectations for business conditions during the next five years also fell (-7.3% m/m, +6.0% y/y). Finally, the index measuring the expected change in consumers' finances fell 5.6% (+5.4% y/y) and reversed most of the prior month's increase.

Perceptions about current economic conditions also fell. The view of current personal finances fell 13.0% (-8.3% y/y) and consumers' view of current buying conditions for large household goods fell 1.9% (-4.4% y/y).

The assessment of government policy fell a hard 7.0% m/m (-2.4% y/y) to the lowest level in over one year..

The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end.

The U.S. Federal Reserve today took action to reduce the Discount Rate. An accompanying statement to this action can be found here. Today's actionis meant toencourage the use of the discount window by specific banksthat need more liquidity without reducing the cost of funds toall banks, as an easing of the fed funds rate would do.

William Poole, President, Federal Reserve Bank of St. Louis, spoke today on U.S. Export Opportunities and his comments are available here

University of Michigan  August (Prelim.) July Aug y/y 2006 2005 2004
Consumer Sentiment 83.3 90.4 1.6% 87.3 88.5 95.2
   Current Conditions 97.7 104.5 -5.9% 105.1 105.9 105.6
   Expectations 74.1 81.5 9.0% 75.9 77.4 88.5
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