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Economy in Brief

Michigan Consumer Sentiment Lowered By A Foul Opinion of Government
by Tom Moeller February 29, 2008

For all of February the University of Michigan's consumer sentiment index fell just 9.7% to a level of 70.8. That decline was a little better than the 11.2% plunge from January reported at mid-month. It also was better than the reading of 70 that had been generally expected. Nevertheless, it was the largest m/m decline since 2005 and it was to the lowest level since early 1992.

Opinions about government policy continued down sharply. The 11.5% m/m (-21.6% y/y) decline was deeper than initially indicated and dropped the measure of opinions to the lowest level since 1993. Just 9% of those surveyed indicated that they thought government was doing a good job and 40% indicated that a bad job was being done.

The index of expected business conditions during the next year improved very slightly from the preliminary reading but it still fell a hard 8.4% m/m, to its lowest level since just after the recession of 1990. Expectations for business conditions during the next five years fell 5.7% (-15.3% y/y) while expectations for personal finances reversed all of a January increase and fell 3.4%.

The current conditions index fell a bit more than initially indicated. The 11.2% m/m drop was to the lowest level since 1992. Current conditions for buying large household goods continued down 15.8% m/m to the lowest level since 1992. The view of current personal finances also fell 4.1% (-21.0% y/y).

Expectations for inflation during the next twelve months fell just slightly to 3.9% but that still was up from a 3.6% expectation in February '07. For the next five to ten years expectations held steady at 3.4%.

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.

The Reaction of Consumer Spending and Debt to Tax Rebates – Evidence from Consumer Credit Data from the Federal Reserve Bank of Chicago can be found here.

University of Michigan Feb (Final) Feb (Prelim. Jan Dec Feb  y/y 2007 2006 2005
Consumer Sentiment 70.8 69.6 78.4 75.5 -22.5% 85.6 87.3 88.5
Current Conditions 83.8 85.4 94.4 91.0 -21.5% 101.2 105.1 105.9
Expectations 62.4 59.4 68.1 65.6 -23.4% 75.6 75.9 77.4
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