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Economy in Brief

U.S. Consumer Sentiment Falls Sharply from June
by Tom Moeller July 30, 2010

Consumers remain glum. The full-month July reading of consumer sentiment, as measured by the University of Michigan, dropped sharply from June to 67.8, though that was up slightly from the mid-month reading. The latest was the lowest reading since November. Nevertheless the index level remained up 22.6% since the low in November 2008. During the last ten years there has been an 89% correlation between the level of sentiment and the y/y change in real consumer spending.

The expectations index dropped sharply m/m but remained up 26.6% from the 2008 low. The readings for expected business conditions during the next year (-4.3% y/y) and expectations for business conditions during the next five years (0.0% y/y) both fell sharply from June. Expectations for personal finances also fell hard from June (-0.9% y/y).

Expected price inflation during the next year held steady 3.3% and remained up from the December 2008 low of 1.7%. Respondents' view of government policy, which may eventually influence economic expectations, retraced the gains of the prior two months and remained down sharply from its high last May. Fourteen  percent of respondents thought that a good job was being done by government versus 41% who thought a poor job was being done.

Sentiment about current economic conditions also fell sharply from June to the lowest level since November. The assessment of current personal finances reversed its improvement (5.7% y/y) since February while perceived buying conditions for large household goods, including furniture, refrigerators, stoves & televisions fell hard to the lowest level since November (+10.8% y/y).

The Reuters/University of Michigan survey data are not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

University of Michigan July Mid- July June May July Y/Y 2009 2008 2007
Consumer Sentiment 67.8 66.5 76.0 73.6 2.7% 66.3 63.8 85.6
   Current Economic Conditions 76.5 75.5 85.6 81.0 8.5 69.6 73.7 101.2
   Expectations 62.3 60.6 69.8 68.8 -1.4 64.1 57.3 75.6
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