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Economy in Brief

Michigan Consumer Sentiment Stays Stable; Opinion of Government Jumps
by Tom Moeller March 13, 2009

The earlier souring of consumers' moods seems to have stabilized. The University of Michigan reported that its reading of consumer sentiment held steady in early March with its February level. In fact, sentiment has moved roughly sideways since the summer, punctuated by a brief spike in the fall. Nevertheless the March reading of 56.6 was near the lowest since 1980. The latest figure was down 18.6% from last March but the reading came in slightly above 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 firmed a bit and recovered nearly half of the February decline. Expectations for business conditions during the next year led that increase but remained near the lowest level since 1980. Expectations for conditions during the next five years were about unchanged m/m. 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 continued to move lower and was down by one-quarter during the last twelve months. Buying conditions for large household goods fell sharply to the lowest level since last November and remained down 22.6% from a year earlier. The view of current personal finances also fell and remained down by one-half from early 2007.

The opinion of government policy, which may eventually influence economic expectations, improved sharply to the highest level since January of 2007. Twenty three percent of respondents thought that a good job was being done by government, up from the four percent low of last December, while a much reduced twenty eight percent thought that a poor job was being done.

Inflation expectations for the next year were about stable at 2.4%. They were as high as 7.0% last May. The range of expectations is from slight price deflation to a 5.3% increase in prices. The expected inflation rate during the next five years reversed most of the increases during the last two months and fell to 2.9%.

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.

University of Michigan Mid-March February January March y/y 2008 2007 2006
Consumer Sentiment 56.6 56.3 61.2 -18.6% 63.8 85.6 87.3
  Current Conditions 62.3 65.5 66.5 -26.0 73.7 101.2 105.1
  Expectations 53.0 50.5 57.8 -11.8 57.3 75.6 75.9
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