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Economy in Brief

Consumer Sentiment Improves
by Tom Moeller  December 23, 2010

The consumer held onto the improved mood adopted since this past summer, just in time for the holiday season. During December the University of Michigan Index of Consumer Sentiment rose to 74.5, slightly better than the mid-month reading and up from 71.6 last month. It was the highest level since June but it was slightly short of Consensus expectations for 74.7. During the last ten years there has been a 60% correlation between the level of sentiment and the three-month growth in real consumer spending.

The brightening of consumer attitudes was across-the-board. The index of sentiment regarding current economic conditions improved to 85.3 which was its highest since January 2008. That was led by another jump in attitudes about conditions for buying large household goods such as furniture, a refrigerator, stove or a television. Sentiment concerning personal finances slipped m/m but remained improved from last year's low. The index of consumer expectations gained to 67.5 which was its highest in six months. The expected change in personal finances was slightly improved but the m/m increase left the index below this year's high. Expected buying conditions were somewhat firmer.

Expected price inflation during the next year added to its mid-month rise and increased to 3.8%, the highest level since May. Respondents' view of government policy, which may eventually influence economic expectations, improved m/m to a reading of 71; still near its lowest since January 2009. Thirteen percent of respondents thought that a good job was being done by government while 42% thought a poor job was being done, nearly the most since January 2009.

The Reuters/University of Michigan survey data are not seasonally adjusted. The readings are based on telephone interviews with just over 300 households during early-to-mid November. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

University of Michigan (Q1'66 = 100) Dec Nov Oct Dec Y/Y% 2010 2009 2008
Consumer Sentiment 74.5 71.6 67.7 2.8 71.8 66.3 63.8
Current Economic Conditions 85.3 82.1 76.6 9.4 81.0 69.6 73.7
Personal Finances 80 81 78 9.6 79 67 78
Buying Conditions For Large Household Goods 140 131 119 9.4 130 112 112
Expectations 67.5 64.8 61.9 -2.0 65.9 64.1 57.3
Expected Change In Personal Finances 112 109 110 -3.4 110 113 107
Business Conditions Next 12 Months 79 71 67 0.0 75 65 48
Business Conditions Next 5 Years 78 78 70 -3.7 79 78 73
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