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Economy in Brief

Michigan Consumer Sentiment Better Than Expected in July
by Tom Moeller July 25, 2008

The University of Michigan's July reading of consumer sentiment rose 8.5% from June, an improvement from the read for early July which showed a 0.4% uptick versus the June average. The rise beat Consensus expectations for a reading of 56.3 which would have been unchanged from June. The latest level of sentiment was its highest since April.

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 expectations component of overall sentiment was much firmer than reported at mid-month. The full-month index rose 8.7% to its highest level since March led by a 9.4% rise (-16.0% y/y) in expectations for personal finances. Expectations for business conditions during the next year also were firm and expectations for conditions during the next five years made up about all of a sharp July decline.

The current conditions index rose 8.1% and recovered all of a decline during June. The rise was due to a sharp increase in the index of whether now is a good time to buy large household goods, to the highest level since March (-26.3% y/y). The view of current personal finances also rose and made about half of the June decline (-36.5% y/y).

The opinion of government policy, which apparently influences economic expectations, gave back about half of its June improvement.

The mean expected rate of inflation during the next twelve months slipped m/m to 6.3% versus an initial expectation for 6.9%. During the next five years the expected inflation rate fell further to 3.5%, the lowest level since April.

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 July (Prelim.) June May July y/y 2007 2006 2005
Consumer Sentiment 61.2 56.6 56.4 59.8 -32.3% 85.6 87.3 88.5
  Current Conditions 73.1 69.5 67.6 73.3 -30.0% 101.2 105.1 105.9
  Expectations 53.5 48.3 49.2 51.1 -34.4% 75.6 75.9 77.4
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