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Economy in Brief

Michigan Consumer Sentiment Rose With Lower Oil Prices
by Tom Moeller September 26, 2008

The University of Michigan's reading of consumer sentiment in September jumped 11.6% though the gain was less than the 16.0% pop in the mid-month report. It still was the highest level since February and the gain to 70.3 contrasted with Consensus expectations for a reading of 70.0.

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 4.6% with lower oil prices, though that was higher than a 3.9% expectation at mid-month. It was as high as 7.0% in May. During the next five years the expected inflation rate fell to 3.3%, the lowest level since mid-2005.

The expectations component of consumer sentiment led the increase in the total with a 16.1% jump, 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 since February.The expected change in personal finances also recovered to the highest level in one year.

The current conditions index rose a moderate 5.6% for the month to the highest level since April. The view of current personal finances rose to their highest level since April but the sense of buying conditions for large household goods fell m/m, down 25.7% y/y.

The opinion of government policy, which apparently influences economic expectations, rose slightly from August (-26.6% y/y). Only seven percent of respondents thought that a good job was being done by government, an unchanged reading 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 September Mid-September August Sept. y/y 2007 2006 2005
Consumer Sentiment 70.3 73.1 63.0 -15.7% 85.6 87.3 88.5
  Current Conditions 75.0 76.5 71.0 -23.4 101.2 105.1 105.9
  Expectations 67.2 70.9 57.9 -9.3 75.6 75.9 77.4
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