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Economy in Brief

Michigan Consumer Sentiment Improved Slightly in December
by Tom Moeller December 23, 2008

The full-month reading of consumer sentiment in December from the University of Michigan recovered slightly from the the dismal November level. At 60.1 the figure was improved slightly from the mid-month level and that was up 8.7% from November. It was the highest level since September. It still was down, however, by nearly one quarter from last year. The December reading beat Consensus expectations for 58.7.

During the last ten years there has been a 58% correlation between the level of sentiment and the three-month change in real consumer spending.

The same as in the mid-month report, 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 just 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 remained roughly unchanged m/m. The series was near its lowest since 1990 and close to the low of 1980. Expectations for business conditions during the next year dropped to the lowest since 1980 and expectations for conditions during the next five years ticked up. 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 for the second month (-25.7% y/y). A higher 45% 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. Forty nine percent of survey participants thought that a poor job was being done by government.

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 1.7%. It was as high as 7.0% in May. The expected inflation rate during the next five years fell to 2.6%, 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 December Mid-December November October December y/y 2007 2006 2005
Consumer Sentiment 60.1 59.1 55.3 57.6 -20.4% 85.6 87.3 88.5
  Current Conditions 69.5 69.4 57.5 58.4 -23.6 101.2 105.1 105.9
  Expectations 54.0 52.4 53.9 57.0 -17.7 75.6 75.9 77.4
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