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Economy in Brief

Michigan Consumer Sentiment Sags M/M But Remains Improved From Its Low
by Tom Moeller October 16, 2009

Consumer sentiment sagged this month but retraced just half of the rise during September. The University of Michigan's mid-month October reading of consumer sentiment fell to 69.4 from a September reading of 73.5. Despite the decline sentiment remained up by roughly one-quarter from the low last Fall. Consensus expectations had been for no change this month versus September. 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 expected economic conditions fell the hardest this month with an 8.0% m/m decline. That mostly erased September's gain. Despite the decline, however, the index remained up by one-third from the February low. The latest decline was led by a sharp 18.7% drop in expected business conditions during the next five years which reversed much of the recent improvement. Expected conditions during the next year fell just modestly and the index remained more than double the February low. Conversely, the expected change in personal finances improved and the index was up nearly one-quarter from the low during 2008 with the higher stock market.

The reading of current economic condition fell just moderately as the reading of personal finances slipped m/m. It has remained range-bound this year with higher unemployment. The reading of buying conditions for large household goods held steady m/m but it is up by one-third from the November low due to low prices.

Expected price inflation during the next year amounted to 3.1%; up slightly from September but down from a high of 7% during May of last year. A low of 0.3% inflation was expected by 25% of respondents but 5.0% inflation was expected by another quarter. Inflation of 3.4% during the next 5-10 years was the mean expectation. 

The opinion of government policy, which may eventually influence economic expectations, fell slightly from September and remained near the  lowest level since February. Thirty percent of respondents thought that a poor job was being done by government. A reduced 19% thought that a good job was being done. It had hit 30% in April.

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.

Optimism Amid Uncertainty from the Federal Reserve Bank of Dallas is available here

University of Michigan Mid-October September August Oct y/y 2008 2007 2006
Consumer Sentiment 69.4 73.5 65.7 20.5% 63.8 85.6 87.3
  Current Conditions 72.1 73.4 66.6 23.5 73.7 101.2 105.1
  Expectations 67.6 73.5 65.0 18.6 57.3 75.6 75.9
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