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Economy in Brief

Michigan Consumer Sentiment Slides This Month
by Tom Moeller July 10, 2009

Worries about the prospects for the economy and its current position dropped the University of Michigan's July reading of consumer sentiment. The mid-July overall figure fell to 64.6 which was its lowest level since March. Consensus expectations had been for a reading of 71.0. 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 the index deteriorated the most. It posted a 12.0% m/m decline though it still was up y/y. Expectations for personal finances fell sharply with lower stock prices. Expected business conditions during the next five years also fell sharply to the lowest level since March and expectations for conditions during the next year fell to the lowest since April.

The current economic conditions gave back roughly half of its improvement during June. The decline was led by a reversal of last month's rise in the index of current buying conditions for large household goods. The reading of current personal finances surprisingly rose, perhaps due to less debt, and now it has returned to the April level.

The opinion of government policy, which may eventually influence economic expectations, fell for the second month to its lowest level since February. An increased 33% of respondents thought that a poor job was being done by government while a reduced 25% thought that a good job was being done

Inflation expectations for the next year held roughly stable at 3.8%. 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 Mid-July June May July y/y 2008 2007 2006
Consumer Sentiment 64.6 70.8 68.7 5.6% 63.8 85.6 87.3
  Current Conditions 70.4 73.2 67.7 -3.7 73.7 101.2 105.1
  Expectations 60.9 69.2 69.4 13.8 57.3 75.6 75.9
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