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Economy in Brief

U.S. Consumer Sentiment Slumps As Oil Prices Surge
by Tom Moeller  March 11, 2011

Consumers don't like it when they lose money. And the rise in oil prices reduces their spending power. The mid-March reading of consumer sentiment, from the University of Michigan, reflected that concern and declined 12.0% to 68.2 from 77.5 in February. A reading of 76.4 had been expected. During the last ten years there has been an 83% correlation between the level of sentiment and the y/y change in real consumer spending.

The expectations component of consumer sentiment fell the sharpest with an 18.6% m/m decline to 58.3, the lowest level in exactly two years. The decline was paced by a nearly one-quarter drop in expected business conditions during the next five years. That was followed by slightly less of a decline in expected conditions during the next year. The expected change in personal finances dropped 8.8%, again, to the lowest level in two years. The index of current economic conditions fell 3.8% and reversed much of the February gain. The reading of current personal finance dropped 11.0% but buying conditions were seen as having improved slightly.

Expected price inflation during the next year jumped a full percentage point to 5.4% with the surge in oil prices. The latest reading was the highest since July 2008 when energy prices similarly surged. During the next five-to-ten years, inflation is expected to average a lesser, but elevated, 3.7%. Respondents' view of government policy, which may eventually influence economic conditions, reversed nearly all of its February gain. Just 14 percent of respondents thought that a good job was being done by government while while an elevated 40% 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) Mid
Feb Jan Mar Y/Y 2010 2009 2008
Consumer Sentiment 68.2 77.5 74.2 -7.3% 71.8 66.3 63.8
 Current Economic Conditions 83.6 86.9 81.8 1.5 81.0 69.6 73.7
   Personal Finances 81 91 85 5.2 79 67 78
   Buying Conditions For Large Household Goods 134 133 126 -1.5 130 112 112
 Expectations 58.3 71.6 69.3 -14.1 65.9 64.1 57.3
   Expected Change In Personal Finances 104 114 110 -7.1 110 113 107
   Business Conditions Next 12 Months 64 85 87 -17.9 75 65 48
   Business Conditions Next 5 Years 63 87 80 -23.2 79 78 73
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