Confidence Inequality
Tuesday, October 28, 2014 at 03:03PM
bespokeinvest.com
This morning's Consumer Confidence for the month of October came in significantly ahead of forecasts, coming in at a level of 94.5 on the headline reading compared to expectations of 87.0. This month's reading represented a 5.5 point jump from a revised September reading of 89.0 (originally reported at 86.0). This month's 7.5 point upside surprise represents the biggest beat relative to expectations since February 2013, and the 14th largest upside surprise since 2000. At a current level of 94.5, Consumer Confidence remains above its broken downtrend from the 2000 highs, and slightly above the historical average of 93.3 going back to 1967. The last time Consumer Confidence was this high was in October 2007. Sharp-eyed readers will recall that October 2007 also marked the peak of the last bull market, but before we go running for the hills, back then Consumer Confidence was already on a downtrend rather than an uptrend as it is now.
While overall Consumer Confidence is back above its historical average, depending on your income the rebound in confidence has been extremely uneven. The chart below compares Consumer Confidence for US consumers based on income with the red line showing confidence for consumers with annual incomes greater than $50K and the blue line showing confidence levels for consumers with incomes between $35K and $50K. While the two have historically tracked each other relatively closely, in the current recovery the confidence gap has been steadily widening. We have highlighted this trend numerous times over the years, but as the recovery has progressed, the gap has only widened.
The final chart shows the spread in confidence levels using a six-month rolling average to smooth out month to month moves. At a current average spread of 30.8, the gap is now less than a half-point below its all-time record high of 31.17 reached in June. One would expect that as we get deeper and deeper into the economic recovery, the rising tide would start to lift all boats, but for lower income Americans, the pickup in confidence has been under pressure. Anyone reading the papers in the last several months has read about the widening gap between the rich and poor, and these numbers show how it has impacted confidence.
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