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Economy in Brief

Michigan Consumer Sentiment Recovered Slightly
by Tom Moeller December 12, 2008

The mid-December reading of consumer sentiment from the University of Michigan recovered slightly from the the dismal November level. At 59.1 the figure was up 6.9% from November and it was the highest level since September. It still was down, however, by nearly one quarter from last year. The reading for December beat Consensus expectations for 55.0.

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.

Weak prices most likely pushed up the index of buying conditions for large household goods by one-third from November. The view of current personal finances improved slightly from November's record low level, and the figure remained off by nearly one half from last year's average.

The expectations component of consumer sentiment continued to fall. A 2.8% m/m decline returned the series to nearly its lowest since 1990 and close to the low of 1980. Expectations for business conditions during the next year did drop to the lowest since 1980 and expectations for conditions during the next five years fell as well. The expected change in personal finances improved slightly for the second consecutive month.

The opinion of government policy, which apparently influences economic expectations, ticked up slightly for the second month (-29.7% y/y). A higher 42% thought that a fair job was being done but a lesser 4% thought that a good job was being done. That was nearly the lowest 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 fell further to 1.9%. It was as high as 7.0% in May. The expected inflation rate during the next five years fell to 2.7%, a record low for the series which dates back to 1980.

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-December November October December y/y 2007 2006 2005
Consumer Sentiment 59.1 55.3 57.6 -21.7% 85.6 87.3 88.5
  Current Conditions 69.4 57.5 58.4 -23.7 101.2 105.1 105.9
  Expectations 52.4 53.9 57.0 -20.1 75.6 75.9 77.4
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