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Economy in Brief

Michigan Consumer Sentiment Improved Further in August
by Tom Moeller August 29, 2008

The University of Michigan's reading of consumer sentiment for this month rose 2.9% from July to an index level of 63.0. That was firmer than a 0.8% uptick reported in the mid-month survey. The gain followed a 8.5% increase in July and the level was higher than Consensus expectations for a reading of 62.0. The latest level of sentiment was the highest since March.

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 continued firm and rose 8.2% after the 8.7% increase during July. Expectations for business conditions during the next year jumped and expectations for conditions during the next five years rose firmly as well.The expected change in personal finances were unchanged after a strong July increase.

The current conditions index fell 2.9% for the month and reversed much of the improvement during July. The decline was due to a sharp decline in the index of whether now is a good time to buy large household goods. It reversed half of the July gain. The view of current personal finances also fell slightly.

The opinion of government policy, which apparently influences economic expectations, stabilized after a sharp decline in July. Only six percent of respondents thought that a good job was being done by government.

The mean expected rate of inflation during the next twelve months fell further to 5.3%. During the next five years, however, the expected inflation rate rose 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 August August  (Prelim.) July Aug. y/y 2007 2006 2005
Consumer Sentiment 63.0 61.7 61.2 -24.5% 85.6 87.3 88.5
  Current Conditions 71.0 69.3 73.1 -27.8% 101.2 105.1 105.9
  Expectations 57.9 56.8 53.5 -21.4% 75.6 75.9 77.4
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