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Economy in Brief

Michigan Consumer Sentiment Estimate Little Changed At Lowest Since 1980
by Tom Moeller February 27, 2009

The University of Michigan reported that its February reading of consumer sentiment fell a sharp 8.0% month-to-month, about equal to the mid-month read. That nearly reversed all of the gains of the prior two months and returned the index to its lowest level since 1980. The latest figure was down 20.5% from last February and the reading about matched Consensus expectations. During the last ten years there has been a 62% correlation between the level of sentiment and the three-month change in real personal consumption expenditures.

The expectations component of consumer sentiment led the decline in the overall February index. The 12.6% month-to-month drop reversed all of the increases during the prior several months and the series landed at its lowest level since 1980.

Expectations for business conditions during the next year plunged 34.0% m/m to the lowest level since 1980. Expectations for conditions during the next five years also fell. The expected change in personal finances also fell back to the lowest level since last June with a sharp 9.6% decline.

The current economic conditions index fell 1.5% after the sharp 4.3% January decline. Buying conditions for large household goods were viewed as having improved very slightly but the index remained down 16.3% from a year earlier. The view of current personal finances fell sharply and the index remained down by nearly one-half from early 2007.

The opinion of government policy, which apparently influences economic expectations, improved to the highest level since last January. Fourteen percent of respondents thought that a good job was being done by government while a reduced forty-three percent thought that a poor job was being done.

Inflation expectations for the next year fell back to 2.3%. It was as high as 7.0% in May. The range of expectations is from slight price deflation to a 5.2% increase in prices, though that latter figure is half the year-ago expectation. The expected inflation rate during the next five years worked the other way and ticked up to 3.5%.

The University of Michigan survey data 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.

Budget of the United States Government Fiscal Year 2010 The Budget Documents from the Office of Management and Budget can be found here.

The Shimer Puzzle and the Identification of Productivity Shocks from the Federal Reserve Board is available here.

University of Michigan February Mid
February
January December February y/y 2008 2007 2006
Consumer Sentiment 56.3 56.2 61.2 60.1 -20.5% 63.8 85.6 87.3
  Current Conditions 65.5 67.1 66.5 69.5 -21.8 73.7 101.2 105.1
  Expectations 50.5 49.1 57.8 54.0 -19.1 57.3 75.6 75.9
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