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Economy in Brief

U.S. Consumer Sentiment Stalls
by Tom Moeller August 27, 2010

The latest two reports on consumer sentiment suggest a gloomy state of affairs. First, the full-month August figure of 68.9 from the University of Michigan was lower than the mid-month reading. Second, this figure was nearly the lowest level since November. During the last ten years there has been an 88% correlation between the level of sentiment and the y/y change in real consumer spending.

The expectations index was roughly stable m/m at 62.9. The readings for expected business conditions during the next year rose (0.0% y/y) as did expectations for business conditions during the next five years (-6.3% y/y). The latter figure, however, was sharply lower as of mid-month and nearly the lowest since early-2009. Expectations for personal finances fell further to the lowest since early-2009 (-3.6% y/y).

Expected price inflation during the next year slipped from the mid-month read, falling m/m to 3.2%. However, the latest remained up from the December 2008 low of 1.7%. Respondents' view of government policy, which may eventually influence economic expectations, improved sharply to the highest since November. An increased seventeen percent of respondents thought that a good job was being done by government while a lessened 36% who thought a poor job was being done.

Sentiment about current economic conditions also improved slightly but remained near the lowest level this year. The assessment of current personal finances rose sharply from July (41.4% y/y). However, just 24% of respondents still thought their personal finances were in better shape than one year ago while 42% thought they were worse. Perceived buying conditions for large household goods, including furniture, refrigerators, stoves & televisions fell m/m (6.2% 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 August Mid-August July June August Y/Y 2009 2008 2007
Consumer Sentiment 68.9 69.6 67.8 76.0 4.9% 66.3 63.8 85.6
   Current Economic    Conditions 78.3 78.3 76.5 85.6 17.6 69.6 73.7 101.2
   Expectations 62.9 64.1 62.3 69.8 -3.2 64.1 57.3 75.6
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