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Economy in Brief

Michigan Consumer Sentiment Highest in Four Months
by Tom Moeller January 18, 2008

For early January, the University of Michigan's consumer sentiment index recovered 6.6% m/m to 80.5, the highest level since October.The increase was only the second in eight months and it beat expectations for a continued decline to a level of 74.8.

The current conditions index rose 7.8%, following declines in six of the prior seven months, to the highest level since August. Current buying conditions for large household goods rose 12.4% (-7.2% y/y) on the strength of a 2.3% jump in perceptions that now is a good time to buy. The view of current personal finances rose a lesser 2.0% (-18.7% y/y) following two months of decline.

Expected business conditions during the next year rose 5.3% (-21.1% y/y). A 7.4% improvement in expectations for business conditions during the next five years lifted the total. The latest reading is equal to the 4Q average. Expectations for personal finances rose all of 2.7% (-9.4% y/y), reversed the December decline but was only the second gain in the last nine months.

Expectations for inflation during the next twelve months slipped to 4.1%. For the next five to ten years expectations similarly slipped to a 3.4% rise in prices, equal to the expected gain during all of last year.

Opinions about government policy rose 8.1% m/m (-16.7% y/y) and made up most of December's decline.

The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver's USECON database, with details in the proprietary UMSCA database.

A Primer on the Mortgage Market and Mortgage Finance from the Federal Reserve Bank of St. Louis is available here.

Evolving Inflation Dynamics from the New Keynesian Philips Curve from the Federal Reserve Bank of Richmond can be found here.

University of Michigan Jan (Prelim) Dec Nov Jan  y/y 2006 2005 2004
Consumer Sentiment 80.5 75.5 76.1 -16.9% 87.3 88.5 95.2
   Current Conditions 98.1 91.0 91.5 -11.9% 105.1 105.9 105.6
   Expectations 69.1 65.6 66.2 -21.1% 75.9 77.4 88.5
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