Michigan Consumer Sentiment Highest in Two Years

Building on gains earlier in the month consumer sentiment for all of January rose to its highest level since January of 2008. The Reuters/University of Michigan Index of Consumer Sentiment for all of January rose to 74.4 from 72.5 in December. The latest figure beat Consensus expectations for a reading of 73.0 and it was up sharply from the low of 55.3 in November 2008. During the last ten years there has been a two-thirds correlation between the level of sentiment and the three-month change real consumer spending.

Sentiment about current economic conditions increased another 4.0% after its 13.4% jump from November. The latest was the highest level since March of 2008. Assessments of current financial conditions improved m/m to the highest since September of 2008. Buying conditions for large household goods, including furniture, refrigerators, stoves & televisions, also moved up 3.9% to the highest level since January 2008.

The January reading on expected economic conditions increased sharply from mid-month. The 1.7% m/m increase pulled the index to its highest level since September. Expectations for business conditions during the next year improved and have more-than doubled since last February. Expectations for business conditions during the next five years also improved m/m and rose sharply from the 2008 low. Expectations for personal finances slipped m/m to the lowest since March 2009 as expectations for family income growth remained moderate-to-lower.

Expected price inflation during the next year rose m/m to 3.4% and it was up from the December 2008 reading of 1.7%.Respondents' view of government policy, which may eventually influence economic expectations, improved following the sharp December decline. Just fourteen percent of respondents thought that a good job was being done by government versus 33% who thought a poor job was being done.