Free-fall in Consumer Confidence Ends

Ann Arbor, MI, August 31, 2007–Consumer confidence dropped in the August consumer sentiment survey due to higher food and fuel prices as well as declining home prices and the turmoil in the financial markets.

The free-fall in consumer confidence occurred in the first part of August, with no further declines recorded in the last two weeks of the month.

“Although the late August pause could foreshadow additional declines or renewed strength, it is more likely that consumer confidence will persist at its current level for some time. This will keep consumption growing at about 2¼% during the next four quarters,” according to Richard Curtin, director of the Reuters/University of Michigan Surveys of Consumers.

The Index of Consumer Sentiment was 83.4 in the August 2007 survey, down from 90.4 in July, and just

above the 82.0 recorded in August of 2006.

This is the third year that confidence has recorded lows around mid year, with confidence recovering by year-end in 2005 and 2006. The Index of Consumer Expectations, a closely watched component of the Index of Leading Economic Indicators, was 73.7 in the August 2007 survey, down from 81.5 in July, and well above last August’s low of 68.0. The Current Economic Conditions Index was 98.4 in the August 2007 survey, down from 104.5 in July, but well below the 103.8 recorded in August of 2006.

The decline in consumer confidence among households with incomes under $50,000 was three times larger

than for upper income households. “Half of all lower income households reported that their finances had worsened during the past year, twice as frequent as among high income households,” Curtin noted.

Lower income households voiced complaints about higher prices twice as frequently and cited income gains half as often as households with incomes above $50,000.

“Importantly, when asked about financial prospects for the year ahead, consumers voiced much more positive views, with nearly no differences across income groups,” Curtin added. Overall, just 13% expected their finances to worsen during the year ahead in August. This renewed strength was due to higher income prospects and lower inflation expectations for the year ahead.

Lower home prices were of special concern to higher income households. “Owners of the most expensive

homes more frequently reported price declines during the past year as well as more frequently expected declines in the year ahead,” Curtin said. Combined with increases in borrowing costs, cash-outs of home equity will no longer