Consumer Confidence Holds Steady

Ann Arbor, MI, October 12, 2007--Consumer confidence remained unchanged in September at the same level recorded in August. “Consumers quickly tempered their reactions to the crisis in financial markets and a fear-induced free-fall in confidence was avoided. Over the past several months, however, consumers have become increasingly concerned about falling home prices,” according to Richard Curtin, the Director of the Reuters/University of Michigan Surveys of Consumers.

While these concerns are not expected to spark an economy-wide recession, consumers are anticipated

to become more cautious spenders in the year ahead. “Overall, the pace of growth in real personal consumption is expected to slow to 2.0% over the next four quarters, with some quarters weaker than this average, especially around the turn of the year,” Curtin noted.

The Index of Consumer Sentiment was 83.4 in the September 2007 survey, identical to the August level, and just below the 85.4 recorded in September of 2006. This is the third year that the average of the August and September levels of the Sentiment Index have been nearly identical, ranging from 83.0 to 83.7, despite the fact that slumping home prices have been added to consumers’ concerns about high food and fuel prices. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 74.1 in the September 2007 survey, just above the 73.7 in August and below the 78.2 record last September.

The Current Economic Conditions Index was 97.9 in the September 2007 survey, between the 98.4 in August and the 96.6 in September of 2006.

One-in-four homeowners reported in the September survey that they thought the market value of their home

had recently declined, and one-in-five homeowners anticipated the market value of their home would decline during the year ahead. “Home prices were judged less favorably than anytime in nearly two decades, including the housing slump in the early 1990's,” Curtin said. Recent declines in home prices were concentrated in the West and Northeast.

More consumers anticipated interest rate declines (even before the Fed’s recent cut) than anytime since just

before the last round of cuts that started in January of 2001. Interestingly, consumers did not anticipate that the rate cut would have an immediate impact on the economy, but thought it would improve conditions over the longer term.

“Although consumers were slightly more upbeat about job prospects in September than in August, consumers nonetheless expected the unemployment rate to rise just above 5% during the year ahead,” Curtin explained.

High food and fuel prices remained a top concern of consumers, especially lower income families. “When

asked to explain in their own words how their financial situation had recently changed, one-third of households with incomes below $50,000 said that higher prices had already devastated their family’s budget, and half of these families expected prices to increase faster than their incomes during the year ahead, reducing their living standards even more,”noted Curtin.

Higher income households voiced relatively greater concerns about the falling value of their homes. The

average homeowner expected the value of their home to increase by just four-tenths of one percent (0.4%) during the year ahead in September, down from the already greatly reduced level of 2.5% six months ago.

Richard