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Economy in Brief

Michigan Consumer Sentiment Declines As The Reading of Personal Finances Falls To A Record Low
by Tom Moeller August 14, 2009

Worries about personal finances and the shape of the U.S. economy persisted this month. The University of Michigan's early-August reading of consumer sentiment fell to 63.2 from 66.0 during July and was down for the third consecutive month. Moreover, sentiment was at its lowest level since March. Consensus expectations had been for a firmer August reading of 69.0. During the last ten years, there has been a 69% correlation between the level of sentiment and the growth in real consumer spending during the next five months.

The reading of current economic conditions fell the hardest this month with a 7.9% drop which was double the July decline. The reading of current personal finances fell quite hard m/m as employment & income weakness lagged the stock market's improvement. In fact, the level of the reading was at a record low. Also within the current conditions index was a decline in buying conditions for large household goods to the lowest level since April.

The expectations component of the sentiment index also fell this month. It posted a moderate 1.7% decline after the 8.7% July drop. But still the index up y/y. Expectations for personal finances fell, down for the third month in four (+1.9% y/y). Expected business conditions during the next year also fell for the second month in three but expectations for conditions during the next five years ticked higher (+6.9% y/y). Inflation expectations for the next year fell sharply to 2.9% which was the lowest level since March. That compares to a low of 1.7% last December but remained down from a reading which was as high as 7.0% during May of last year.

The opinion of government policy, which may eventually influence economic expectations, fell for the third straight month to its lowest level since February. An increased 36% of respondents thought that a poor job was being done by government while a reduced 17% thought that a good job was being done.

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-August July June Aug y/y 2008 2007 2006
Consumer Sentiment 63.2 66.0 70.8 0.3% 63.8 85.6 87.3
  Current Conditions 64.9 70.5 73.2 -8.6 73.7 101.2 105.1
  Expectations 62.1 63.2 69.2 7.3 57.3 75.6 75.9
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