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Economy in Brief

Consumer Sentiment Deterioration Stabilizes
by Tom Moeller  October 1, 2010

Consumers don't feel terrific, but at least their mood isn't deteriorating. The University of Michigan reported that its September Consumer Sentiment reading of 68.2 held near the levels of the prior two months. Also, the figure improved from mid-month. A level of 67.0 was the Consensus expectation. During the last ten years there has been a 63% correlation between the level of sentiment and the three-month change in real consumer spending.

Sentiment about current economic conditions improved m/m from close to the lowest level this year. The assessment of current personal finances held steady m/m (+18.8% y/y) while perceived buying conditions for large household goods, including furniture, refrigerators, stoves & televisions rose (2.5% y/y).

The expectations index fell m/m to 60.9 but the decline was less than reported two weeks ago. The reading for expected business conditions during the next year fell sharply from August (-30.7% y/y) as did expectations for business conditions during the next five years (-19.8% y/y). Expectations for personal finances held roughly even with August and July (-6.1% y/y).

Expected price inflation during the next year fell m/m to 3.1%. However, the latest remained up from the December 2008 low of 1.7%. Respondents' view of government policy, which may eventually influence economic expectations, fell and reversed most of its August improvement. A lessened 16% of respondents thought that a good job was being done by government while an increased 41% thought a poor job was being done, the highest since early last year.

The Reuters/University of Michigan survey data are not seasonally adjusted. The reading is based on telephone interviews with about 500 households at month-end. The summary indexes are in Haver's USECON database with details in the proprietary UMSCA database.

University of Michigan September Mid-Sept. August July Sept. Y/Y 2009 2008 2007
Consumer Sentiment 68.2 66.6 68.9 67.8 -7.2% 66.3 63.8 85.6
  Current Economic   Conditions 79.6 78.4 78.3 76.5 8.4 69.6 73.7 101.2
  Expectations 60.9 59.1 62.9 62.3 -17.1 64.1 57.3 75.
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