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Economy in Brief

Consumer Sentiment Regains Some Spirit
by Tom Moeller  January 28, 2011

Consumer sentiment bounced back late this month from some mid-month apprehension. As a result, the full-month reading just slipped from December. The January reading of consumer sentiment from the University of Michigan dipped just modestly to 74.2 following gains during the prior two months. Nevertheless, the figure remained near its highest since June. The January reading was better than Consensus expectations for 73.3. 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 January reading of current economic conditions fell 4.1% to its lowest since October. The reading of current personal finances bounced back from early-month gloom and improved 6.3% to its highest since April 2008. The reading of buying conditions for large household goods, like appliances and furniture, slipped. The expectations component of consumer sentiment remained firm and rose 2.7% 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 rose moderately m/m.

Expected price inflation during the next year increased further to 4.2%. As oil prices strengthened the latest reading was the highest since October 2008. Respondents' view of government policy, which may eventually influence economic expectations, improved sharply from the mid-month reading to end the full-month up slightly from December. A stable 13 percent of respondents thought that a good job was being done by government while a lessened 41% thought a poor job was being done, still 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 II: Household Debt and the Weak U.S. Recovery from the Federal Reserve Bank of San Francisco is available here

University of Michigan (Q1'66 = 100) Jan Mid
Jan
Dec Nov Jan
Y/Y
2010 2009 2008
Consumer Sentiment 74.2 72.7 74.5 71.6 -0.3% 71.8 66.3 63.8
 Current Economic Conditions 81.8 79.8 85.3 82.1 0.9 81.0 69.6 73.7
   Personal Finances 85 77 80 81 10.4 79 67 78
   Buying Conditions For Large Household Goods 126 129 140 131 -5.3 130 112 112
 Expectations 69.3 68.2 67.5 64.8 -1.1 65.9 64.1 57.3
   Expected Change In Personal Finances 110 107 112 109 0.0 110 113 107
   Business Conditions Next 12 Months 87 87 79 71 3.6 75 65 48
   Business Conditions Next 5 Years 80 78 78 78 -7.0 79 78 73
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