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Economy in Brief

Michigan Reading of Consumer Sentiment Remained Glum
by Tom Moeller November 14, 2008

The University of Michigan's reading of consumer sentiment for the middle of this month remained near the low posted during October. The index ticked up to 57.9 from 57.6. The latest level was near the lowest for the series since this past June which in turn was the lowest since early-1980. The latest figure was higher than Consensus expectations for a reading of 56.0.

During the last ten years there has been a 55% correlation between the level of sentiment and the three-month change in real consumer spending.

The mid-month current conditions index improved modestly to 61.4 but it remained down by one-third from last year. The view of current personal finances ticked up m/m but remained down by more than one-third from last year. The index of buying conditions for large household goods recouped about one-third of the October decline but remained off 30.9% y/y and near the lowest since 1980.

The expectations component of consumer sentiment was down. A 2.3% m/m decline this month came on top of the 15.2% October drop. The figures were, however, slightly above the lows reached this past Spring. Expectations for business conditions during the next years fell slightly as did expectations for conditions during the next year, but they both remained up from their recent lows. The expected change in personal finances ticked higher by 0.9% m/m and the reading was up 10% from the Spring low.

The opinion of government policy, which apparently influences economic expectations, also ticked up from October (-35.4% y/y). Only a slightly improved seven percent of respondents thought that a good job was being done by government while 54% thought a poor job was being done. That was near the highest percentage on record.

Recent economic weakness and lower oil prices caused inflation expectations to fall. The mean expected rate of inflation during the next year plummeted to 2.9% from 4.3% last month. It was as high as 7.0% in May. The expected inflation rate during the next five years ticked up to 3.3%, near the lowest level since 2003.

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-November October September November y/y 2007 2006 2005
Consumer Sentiment 57.9 57.6 70.3 -23.9% 85.6 87.3 88.5
  Current Conditions 61.4 58.4 75.0 -32.9 101.2 105.1 105.9
  Expectations 55.7 57.0 67.2 -15.9 75.6 75.9 77.4
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