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Economy in Brief

Michigan Consumer Sentiment Reading Lowest Since 1980
by Tom Moeller November 26, 2008

The University of Michigan's reading of consumer sentiment for the full month of November was worse than at mid-month. The full month index fell to 55.3 from the mid-month read of 57.9 and from 57.6 for October. The latest level was the lowest since early-1980 and it was lower than Consensus expectations for a reading of 57.7.

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 view of current personal finances fell to a record low level, off by nearly one half from last year's average. Sixty one percent of respondents indicated their finances were worse off than last year, a record high. The index of buying conditions for large household goods fell sharply to the lowest since 1980. Most (54%) indicated that now was a bad time to buy because of a heightened sense that times were bad and that more bad times lay ahead.

The expectations component of consumer sentiment was down further than reported at mid-month. A 5.3% m/m November decline 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 to their lowest since July and expectations for conditions during the next year fell as well. The expected change in personal finances improved slightly.

The opinion of government policy, which apparently influences economic expectations, remained about unchanged from October (-37.8% y/y). Only a slightly improved six percent of respondents thought that a good job was being done by government while 55% 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 was stable at 3.1%, 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 November Mid-November October September November y/y 2007 2006 2005
Consumer Sentiment 55.3 57.9 57.6 70.3 -27.3% 85.6 87.3 88.5
  Current Conditions 57.5 61.4 58.4 75.0 -37.2 101.2 105.1 105.9
  Expectations 53.9 55.7 57.0 67.2 -18.6 75.6 75.9 77.4
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