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Economy in Brief

Michigan Consumer Sentiment Up Again In Early January Yet Still Near The Series' Low
by Tom Moeller January 16, 2009

For early January, the University of Michigan reported that consumer sentiment rose slightly for the second month. The 3.0% rise followed an 8.7% increase off the cycle's low in November. Nevertheless, at 61.9 the latest level was near the lowest for the series back to 1980 and earlier. Moreover, the figure remained down by nearly one quarter from last year after the 25.5% decline during all of 2008. The latest reading beat Consensus expectations for a reading of 59.0.

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 expectations component of consumer sentiment rose moderately to the highest level since October. Still, the series was near its lowest since 1990 and close to the low of 1980. Expectations for business conditions during the next year more than recovered the December drop and expectations for conditions during the next five years ticked up as well. The expected change in personal finances rose to the highest level since September.

The current economic conditions index held roughly unchanged from December. A decline in buying conditions for large household goods, presumably due to weak income gains, offset a rise in the view of current personal finances to the highest level since September. The figure did, however, remain off sharply from last year's average.

The opinion of government policy, which apparently influences economic expectations, fell to the series' low (-35.9% y/y). Only six percent of respondents thought that a good job was being done by government and a record fifty-six percent thought that a poor job was being done.

Inflation expectations ticked slightly higher to 2.5% during the next year but that remained near the series' low. It was as high as 7.0% in May. The expected inflation rate during the next five years rose off the series' low to 3.7%.

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-January December November January y/y 2008 2007 2006
Consumer Sentiment 61.9 60.1 55.3 -21.0% 63.8 85.6 87.3
  Current Conditions 69.2 69.5 57.5 -26.7 73.7 101.2 105.1
  Expectations 57.2 54.0 53.9 -16.0 57.3 75.6 75.9
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