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Economy in Brief

Michigan Consumer Sentiment Jumped With Lower Oil Prices
by Tom Moeller September 12, 2008

The University of Michigan's reading of consumer sentiment in mid-September jumped 16.0% from August to an index level of 73.1. That was the highest level since January and the gain contrasted with Consensus expectations for a reading of 64.0.

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 mean expected rate of inflation during the next year dropped to 3.9% with lower oil prices. It was as high as 7.0% in May. During the next five years the expected inflation rate fell to 3.1%, the lowest level since mid-2005.

The expectations component of consumer sentiment led the increase in the total with a 22.5% spike, but the rise still left the reading down slightly from one year ago. Expectations for business conditions during the next year jumped yet they remained lower than last year. Expectations for conditions during the next five years rose firmly to their highest in a year.The expected change in personal finances also recovered to their highest level in one year.

The current conditions index rose a more moderate 7.7% for the month to the highest level since April. The view of current personal finances rose the highest level since May but the sense of buying conditions for large household goods was unchanged, down 23.6% y/y.

The opinion of government policy, which apparently influences economic expectations, rose slightly from August (-27.8% y/y). Only six percent of respondents thought that a good job was being done by government, an unchanged reading since May.

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 Mid-September August July Sept. y/y 2007 2006 2005
Consumer Sentiment 73.1 63.0 61.2 -12.4% 85.6 87.3 88.5
  Current Conditions 76.5 71.0 73.1 -21.9% 101.2 105.1 105.9
  Expectations 70.9 57.9 53.5 -4.3% 75.6 75.9 77.4
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