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Economy in Brief

Michigan Consumer Sentiment Lowest Since 1980
by Tom Moeller May 16, 2008

The preliminary May reading of consumer sentiment from the University of Michigan fell another 5.0% m/m to a level of 59.5. The decline was larger than Consensus expectations for a reading of 62.0. The latest level was the lowest since the brief "credit crunch" recession during 1980.

During the last ten years there has been a 47% correlation between the level of sentiment and the three month change in real consumer spending.

The current conditions index nearly matched its April decline and fell 6.9% to the lowest level since 1981. The view of current conditions for buying large household goods dropped hard again, this month by 6.3% (-34.4% y/y) and the view of current personal finances fell 8.1% (-30.1% y/y).Far fewer respondents indicated that their income was higher.

The expectations component of overall sentiment fell 3.0% after its 11.3% April dive. The index fell to its lowest level since late 1990. Expectations for personal finances fell slightly after a sharp April decline. Expectations for business conditions during the next year fell much more strongly by 12.5% (-63.9% y/y), about the same as during April. Expectations for conditions over the next five years just dipped m/m (-21.3% y/y).

Opinions about government policy, which apparently influence economic expectations, cratered 21.9% m/m (-43.2% y/y). The percentage of those surveyed who indicated that they thought government was doing a good job was stable at 6% but those who thought a poor job was being done shot up to a record 56% from 43% in April.

The mean expected rate of inflation during the next twelve months surged to 7.0% from 5.7% in April, the highest level since 1981.Has the Behavior of Inflation and Long-Term Inflation Expectations Changed? from the Federal Reserve Bank of Kansas City can be found here.

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.

Yesterday's speech by Fed GovernorFrederic S. Mishkin How Should We Respond to Asset Price Bubbles? can be found here.

University of Michigan May (Prelim.) April March May y/y 2007 2006 2005
Consumer Sentiment 59.5 62.6  69.5 -32.6% 85.6 87.3 88.5
  Current Conditions 71.7 77.0 84.2 -31.8% 101.2 105.1 105.9
  Expectations 51.7 53.3 60.1 -33.4% 75.6 75.9 77.4
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