U.S. Personal Consumption & Prices Firm, Income Light

The University of Michigan's consumer sentiment index for all of this month fall 0.9% to 75.5.That was somewhat better than the reading at mid-month and it beat expectations for a December reading of 74.9. Nevertheless it left sentiment down 17.7% y/y.

Somewhat improved expectations caused the better December result. Expected business conditions during the next year fell only 6.8% (-35.2% y/y), an improvement from the -11.0% preliminary reading. Expectations for business conditions during the next five years also improved 6.6% (-16.5% y/y) from the November level and versus the initial read of a m/m decline. Down still is the result versus 3Q. Expectations for personal finances fell further by 2.6% (-9.7% y/y).

The current conditions index in fact was revised lower from the mid-month reading and fell 0.5% after a hefty 6.3% November decline. Current buying conditions for large household goods improved modestly m/m but remained down 13.0% from last December. The view of current personal finances, however, slid 3.0% for the second sharp monthly decline (-17.6% y/y).

The rise in gasoline prices raised expectations for inflation during the next twelve months to 4.4% (slightly lower than the mid-month read) from 4.3% in November and from 3.5% one year ago. For the next five to ten years expectations were for a 3.6% rise in prices.

Opinions about government policy dropped 9.8% m/m which brought this opinion measure down 16.9% from one year ago.

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.

Consumer sentiment, the economy, and the news media is a 2004 paper from the Federal Reserve Bank of San Francisco and it can be found here.

The GFK consumer sentiment report for the UK continues to plunge and it is one of the clearest signs of trouble in the UK economy. The CBI survey on retailing earlier had signaled some weakness and expectations of a softer January to boot. But actual sales data (released today) showed a gain in November although food accounted for all the volume increase. While the Bank of England struggles with policy, consumers seem to have made up their minds about where the balance of risk lies.

At a reading of -14 the GFK index is at its weakest point in over 10 Years. Still, households rate their financial situation as the best in 10 years currently. In this environment their plans for making major purchases are the lowest they have been in 10 Years. Consumers rate the general economic situation in the past 12-months as the worst in the past two years and in the bottom four percent over ten years. They assess inflation as the worst in 10 years.

While BOE is concerned about inflation too, a recent wage survey finds that wages deals have been contained in their recent range and in fact are not accelerating. Of course while that may be good news to the BOE, it is another factor pressuring consumers as energy prices rise.

The outlook for the next 12-months score very weak readings for the household financial situation and the general economic situation both in the bottom 15 percentile of their respective ranges for two years and about the bottom quarter of the range over 10-years. The major purchases index is at the 50% mark for the next 12 months compared to the past two years’ range, but that is a bottom 25% reading over the past 10 years. Obviously the consumer sector has been weak and is weakening again. Stratified by income, both high and low income respondents see conditions as among their poorest in 10 years.

The service sector is beginning to ease in France. The index is down form its peak if 113 in October. As a percent of its range the December reading is still in the top 17% of its range. The outlook reading at +3 stands in the 80.6 percentile of its range and is still in the top 20% of that range. Expected sales for the 3-months ahead are in the 67th percentile of their range, the top third, roughly. Employment expectations are still firm in their range. Over the past three months observed employment is nearly in the top quarter of its range whereas expected employment in the three months ahead slips to the top third at a reading of 10 which is in the 68th percentile of its range.

These readings generally show that the outlook is a bit weaker than the current or recent past readings have been. And while the slowdown and drop off is clear on the chart it is also true that the survey levels are still firm; what we must wait and see is how far this expected softening may go.

Insee released today a separate survey on industry in which morale fared much better than for services. It is surprising with the concerns over the strong euro that it is the service sector where morale is fading faster. This could have something to do with the financial turmoil that has been in train, of course. But industry is holding up much better despite its competitiveness pressures. Even in that survey, however, there are more concerns among executives about the outlook for production in their own business sector. French consumer spending on MFG goods in also November worked its way lower showing an unexpected drop. This spending results may have been affected by recent transits strikes.

There is evidence of strain in the French economy. All of these reports will bear watching as we turn the calendar sheet to a new month and new a new year. We will come upon this new year with the economy a bit more challenged than usual in France, across the Euro Area, in the US and elsewhere.