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Economy in Brief

Consumer Sentiment Sours A Bit
by Tom Moeller  January 14, 2011

Holiday glee toned down in the new year. The mid-January reading on consumer sentiment from the University of Michigan slipped to 72.7 following gains during the prior two months. Nevertheless, the figure remained near its highest since June. The January reading was weaker than Consensus expectations for a rise to 75.5. 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 weakness in consumer sentiment centered in the reading of current economic conditions. The January figure fell 6.4% to its lowest since October. The reading of current personal finances fell 3.7% to its lowest since September. The reading of buying conditions for large household goods, like appliances and furniture, fell harder 7.9%, but only to its lowest since October. The expectations component of consumer sentiment remained firm and rose 1.0% to its highest since June. Holiday spending was done against the backdrop of lower expectations of personal finances over the next year. However, the reading of business conditions during the next twelve months surged 10.1% to its highest since September 2009. Expectations for conditions during the next five years held constant for the second month.

Expected price inflation during the next year increased further to 4.0%, the highest level since May. Going the other way, respondents' view of government policy, which may eventually influence economic expectations, deteriorated to a reading of 66, its lowest in two years. A lessened ten percent of respondents thought that a good job was being done by government while 44% 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.

Consumers and the Economy, Part I: Household Credit and Personal Saving from the Federal Reserve Bank of San Francisco is available here.

University of Michigan (Q1'66 = 100) Mid
Jan
Dec Nov Jan
Y/Y
2010 2009 2008
Consumer Sentiment 72.7 74.5 71.6 -2.3% 71.8 66.3 63.8
 Current Economic Conditions 79.8 85.3 82.1 -1.6 81.0 69.6 73.7
   Personal Finances 77 80 81 0.0 79 67 78
   Buying Conditions For Large Household Goods 129 140 131 -3.0 130 112 112
 Expectations 68.2 67.5 64.8 -2.7 65.9 64.1 57.3
   Expected Change In Personal Finances 107 112 109 -3.4 110 113 107
   Business Conditions Next 12 Months 87 79 71 3.6 75 65 48
   Business Conditions Next 5 Years 78 78 78 -9.3 79 78 73
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