Gallup Economic Confidence Index Plummets To August 2010 Level As Poverty Effect Laps Wealth Effect

Tyler Durden's picture

For anyone wondering why a hypothetical situation in which Bill Dudley met with former colleague Jan Hatzius and told him "ok, we bailed you guys out, now it's your time to kill oil" seems all too possible in our day and age, the latest news on the economy from Gallup should make it all too clear. As of April 11, the polling agency's Economic Confidence Index has dropped to -37: the lowest reading since August of 2010. It appears that disgust with $4+ gas (Poverty Effect for all) is more than offsetting Brian Sack's attempt reclaim the Russell 36,000 (Wealth Effect for some). Gallup's conclusion is absolutely spot on: 'Global events, continued political battles about the budget in the
nation's capital, and a weak, if modestly improving job market add to
consumer uncertainties. As a result, it is not surprising that consumer confidence plummets even as Wall Street continues to do well. However,
if consumers continue to lack confidence and spending doesn't increase,
it is hard to see how the U.S. economy can continue its modest
improvement. In turn, it would seem Wall Street and Main Street will
have to align at some point going forward. Either Wall Street will prove
right and economic conditions on Main Street will improve or the
reverse will prove to be the case."

(source: Gallup)

Some views from Goldman on the collapse in consumer sentiment (which unlike the Conference Board and UMichigan actually polls people instead of Fortune 500 CEOs):

Americans' optimism about the future direction of the U.S. economy plunged in March for the second month in a row, as the percentage of Americans saying the economy is "getting better" fell to 33% -- down from 41% in January. It is also down three points from the 36% of March 2010.

Percentage of All Americans Saying Economy Is Getting Better, January 2008-March 2011 TrendOptimism in March essentially matches last year's low points: 32% in July, 33% in August, and 32% in September. However, it remains higher than it was throughout 2008 and early 2009.

Economic Optimism Declines Across Demographic Groups

While upper-income Americans remain more optimistic than their lower- and middle-income counterparts, optimism among both groups declined substantially in March. Despite Wall Street's strong first quarter performance, the percentage of upper-income Americans saying the economy is getting better fell to 41% in March from 50% in January, leaving it at the same level as a year ago. Lower- and middle-income Americans' economic optimism also fell in March, to 32%, from 40% in January.

Percentage Saying Economy Is Getting Better, by Income, January 2008-March 2011 TrendOptimism about the future of the economy declined across all political parties during the first quarter. Democrats remain the most optimistic, with 45% saying things are getting better, but this is down from 55% in January and 52% a year ago. Independents' economic optimism is at 31% and Republicans' at 21% -- both down from January.

 

Americans of all ages also became less optimistic about the economy in March. Young adults continue to be much more optimistic, however, than do older Americans.

Percentage Saying Economy Is Getting Better, by Age, January 2008-March 2011 Trend

Gallup's self-evident conclusion:

Even as economic adversity seems to mount, the U.S. commodity and equity markets remain near their highs for the year. Surging oil and commodity prices mean higher profits for many companies and investors. Further, a weak U.S. economy suggests the Federal Reserve will continue its easing policies despite some tightening in Europe. While the weakening of the global economy may not be good for U.S. exports, the declining U.S. dollar may moderate the negative impact on many U.S. exporters and their stock values.

On the other hand, American consumers face several major challenges. Soaring gas and food prices not only reduce disposable income but also discourage additional spending as the cost of necessities increases. Global events, continued political battles about the budget in the nation's capital, and a weak, if modestly improving job market add to consumer uncertainties. As a result, it is not surprising that consumer confidence plummets even as Wall Street continues to do well.

However, if consumers continue to lack confidence and spending doesn't increase, it is hard to see how the U.S. economy can continue its modest improvement. In turn, it would seem Wall Street and Main Street will have to align at some point going forward. Either Wall Street will prove right and economic conditions on Main Street will improve or the reverse will prove to be the case.