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Economy in Brief

U.S. Consumer Sentiment Firms Since Mid-Month
by Tom Moeller  February 25, 2011

Consumers' spirits improved markedly during the last two weeks. The full-month February reading of consumer sentiment from the University of Michigan rose to 77.5 and easily beat expectations for 75.3. The reading also was improved from the mid-month read of 75.1 and it remained near its highest since June. During the last ten years there has been a 68% correlation between the level of sentiment and the three-month growth in real consumer spending.

The expectations component of consumer sentiment improved greatly from mid-month and rose 3.3% from January instead of falling 2.5% as reported earlier. Gains in expectations of personal finances over the next year improved, as did the reading of business conditions during the next year and the next five years. The February index of current economic conditions estimate was little-changed from mid-month, and rose 6.2% to its highest level since January 2008. The reading of current personal finances improved another 7.1% to its highest since March 2008. Also, the reading of buying conditions for large household goods, like appliances and furniture, recovered half of its January decline.

Expected price inflation during the next year was 4.4%, down from 4.5% at mid-month. As oil prices strengthened, the latest reading was the highest since September 2008. However, during the next five-to-ten years, inflation is expected to average just 3.2%. Respondents' view of government policy, which may eventually influence economic expectations, recovered after earlier weakness and rose to its highest since August. A much-improved 20 percent of respondents thought that a good job was being done by government while a lessened 35% thought a poor job was being done.

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. The expectations figure is in Haver's AS1REPNA database.

University of Michigan (Q1'66 = 100) Feb Mid
Feb
Jan Dec Feb
Y/Y
2010 2009 2008
Consumer Sentiment 77.5 75.1 74.2 74.5 5.3% 71.8 66.3 63.8
 Current Economic Conditions 86.9 86.8 81.8 85.3 6.2 81.0 69.6 73.7
   Personal Finances 91 81 85 80 21.3 79 67 78
   Buying Conditions For Large Household Goods 133 133 126 140 -2.2 130 112 112
 Expectations 71.6 67.6 69.3 67.5 4.7 65.9 64.1 57.3
   Expected Change In Personal Finances 114 111 110 112 4.6 110 113 107
   Business Conditions Next 12 Months 85 78 87 79 6.3 75 65 48
   Business Conditions Next 5 Years 87 81 80 78 3.6 79 78 73
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