Global| Oct 17 2008Mid-October Michigan Consumer Sentiment Tanks With Stock Market
by:Tom Moeller
|in:Economy in Brief
Summary
We got our first glimpse of consumer's reaction to the unfolding crises in the credit markets. The University of Michigan's mid-October reading of consumer sentiment collapsed by 18.2% from the September level, to 57.5. The latest [...]
We got our first glimpse of consumer's reaction to the unfolding crises in the credit markets. The University of Michigan's mid-October reading of consumer sentiment collapsed by 18.2% from the September level, to 57.5. The latest level was the lowest for the series since June which in turn was the lowest since early 1980. The drop was a record m/m decline for the index which dates back to the late 1970s. Consensus had expected a lesser decline to 65.0.
During the last ten years there has been a 47% correlation between the level of sentiment and the three-month change in real consumer spending.
The current conditions index led the collapse with 21.5% decline. The view of current personal finances gave back all of a September improvement and fell 26.7% while index of buying conditions for large household goods fell 17.8% m/m, down 38.0% y/y.
The expectations component of consumer sentiment aided the m/m decline in the total with a 15.6% drop. Expectations for business conditions during the next year collapsed by 26.2%. Expectations for conditions during the next five years fell 13.3%.The expected change in personal finances also fell 12.5%.
The mean expected rate of inflation during the next year held steady at 4.6% with lower oil prices. It was as high as 7.0% in May. The expected inflation rate during the next five years fell to 2.9%, the lowest level since 2003.
The opinion of government policy, which apparently influences economic expectations, fell sharply from September (-41.5% y/y). Only five percent of respondents thought that a good job was being done by government, the least since 5%.
The University of Michigan survey is not seasonally adjusted.The reading is based on telephone interviews with about 500 households at month-end; the mid-month results are based on about 300 interviews. The summary indexes are in Haver's USECON database, with details in the proprietary UMSCA database.
| University of Michigan | Mid-October | September | October y/y | 2007 | 2006 | 2005 |
|---|---|---|---|---|---|---|
| Consumer Sentiment | 57.5 | 70.3 | -28.9% | 85.6 | 87.3 | 88.5 |
| Current Conditions | 58.9 | 75.0 | -39.7 | 101.2 | 105.1 | 105.9 |
| Expectations | 56.7 | 67.2 | -19.1 | 75.6 | 75.9 | 77.4 |
Tom Moeller
AuthorMore in Author Profile »Prior to joining Haver Analytics in 2000, Mr. Moeller worked as the Economist at Chancellor Capital Management from 1985 to 1999. There, he developed comprehensive economic forecasts and interpreted economic data for equity and fixed income portfolio managers. Also at Chancellor, Mr. Moeller worked as an equity analyst and was responsible for researching and rating companies in the economically sensitive automobile and housing industries for investment in Chancellor’s equity portfolio. Prior to joining Chancellor, Mr. Moeller was an Economist at Citibank from 1979 to 1984. He also analyzed pricing behavior in the metals industry for the Council on Wage and Price Stability in Washington, D.C. In 1999, Mr. Moeller received the award for most accurate forecast from the Forecasters' Club of New York. From 1990 to 1992 he was President of the New York Association for Business Economists. Mr. Moeller earned an M.B.A. in Finance from Fordham University, where he graduated in 1987. He holds a Bachelor of Arts in Economics from George Washington University.
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