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Economy in Brief

Michigan Consumer Sentiment Rose Throughout May
by Tom Moeller May 29, 2009

The University of Michigan's reading of consumer sentiment for all of May rose to the highest level since September of last year. At 68.7 the latest level was up from the mid-month figure and slightly exceeded Consensus expectations for a reading of 68.0. The increase bodes well for the consumer spending outlook because during the last ten years, there has been a 61% correlation between the level of sentiment and the growth in real spending during the next five months.

The expectations component of consumer sentiment, which had been improving, jumped another 10.0% m/m to its highest level since late-2007. The gain was fueled by improved expectations for business conditions during the next year which jumped also to the highest level since 2007. Expected conditions during the next year surged by a similar degree. Unlike last month, however, the higher stock market failed to lift the expected change in personal finances which dipped slightly m/m but were up significantly y/y.

The opinion of government policy, which may eventually influence economic expectations, jumped sharply to the highest level since 2002. Thirty 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 22 percent of respondents thought that a poor job was being done.

The current economic conditions index stuttered, but just slightly, as the reading for current personal finances dipped. The drop was offset, however, by an improved read of current conditions for buying large household goods to the highest level since last August.

Inflation expectations for the next year rose to 3.2%. That compares to a low of 1.7% last December but remained down from a reading which was as high as 7.0% last May.

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 May Mid-May April March May y/y 2008 2007 2006
Consumer Sentiment 68.7 67.9 65.1 57.3 14.9% 63.8 85.6 87.3
  Current Conditions 67.7 66.2 68.3 63.3 -7.6 73.7 101.2 105.1
  Expectations 69.4 69.0 63.1 53.5 35.8 57.3 75.6 75.9
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