The Survey Research Center at the University of Michigan recently released the preliminary version of its January consumer sentiment survey. From December to January the Consumer Sentiment Index dropped from 91.0 to 89.9, just below the six-month average of 90.0. This index peaked in July at 94.4.

As part of its monthly consumer survey, the Center also asks two questions concerning respondents' opinions of the condition of their family's finances a year from now and the status of the economy during the next twelve months. The survey also includes a third question concerning the country's economic health during the next five years. The results of these three questions are combined to produce the Center's Expectations Index. From December to January this index fell out of bed, dropping from 83.7 to 78.4. It seems that the participants in the survey are rapidly losing confidence in the future.

In past articles I reported that the U of M Consumer Sentiment Index was one of the 11 components of the Commerce Department's Composite Index of Leading Economic Indicators (LEI). That was not correct. It is the Expectations Index that is a component of the LEI. The LEI has fallen in 7 out of the last 11 months. Based on the latest reading of the Expectations Index, it looks like the LEI may be headed for another down month.

In other news, the Columbia University Center for International Business Cycle Research (CIBCR) released the December value for its Leading Inflation Index. In December the Index dropped to 103.6 from a November reading of 103.8. The October reading was still higher at 104.4. The Index has a lag time of approximately six months. Reportedly, this index is another indicator that's watched very closely by Fed Chairman Alan Greenspan.

Summing up: Consumers' confidence in the future is fading fast; but, if we can believe the message of the CIBCR index, inflation should slow in the months to come.

Byline: Lafferty (MF Merlin)