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Economy in Brief

Michigan Consumer Sentiment Still in Freefall
by Tom Moeller June 13, 2008

The preliminary reading of June consumer sentiment from the University of Michigan fell 5.4% from May to a level of 56.7. The decline was greater-than-expected and it pulled sentiment 41.5% below the latest peak in early-2007.

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 June current conditions index dropped 6.3% after a 4.8% decline. This index is down 38.3% from early 2007. The view of current personal finances plummeted 18.8% (-40.9% y/y). Conversely, the index of whether now is a good time to buy large household goods improved by 1.8% (-27.9% y/y).

The expectations component of overall sentiment dropped the same 4.1% as it did in May. The index fell to its lowest level since late-1990. Expectations for personal finances dropped sharply to the lowest level since 1980 while expectations for business conditions during the next five years also fell sharply to the lowest level since 1991.

Opinions about government policy, which apparently influence economic expectations, reversed the May plummet and the index increased 23.5%. The percentage of those surveyed who indicated that they thought government was doing a good job recovered to all of 8% of respondents and a fewer 45% thought a poor job was being done versus 55% in May.

The mean expected rate of inflation during the next twelve months fell to 6.6% after the surge last month to 7.0%. During the next five years the expected inflation rate slipped to 3.9%.

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.

University of Michigan June (Prelim.) May April June y/y 2007 2006 2005
Consumer Sentiment 56.7 59.8 62.6 -33.5% 85.6 87.3 88.5
  Current Conditions 68.7 73.3 77.0 -32.6% 101.2 105.1 105.9
  Expectations 49.0 51.1 53.3 -34.4% 75.6 75.9 77.4
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