After two straight better than expected monthly readings, Consumer Confidence for the month of May unexpectedly fell, falling from a revised 94.7 down to 92.6 (expectations were for an increase to 96.1). As shown in the chart below, this month’s decline takes the headline index back below its historical average of 93.4 dating back to 1967. After that initial surge in early 2015, Consumer Confidence just hasn’t been able to break away from its long-term average.
As we have noted numerous times in the past, while overall Consumer Confidence has been relatively weak during the current cycle, depending on income levels, confidence levels have varied widely. In this month’s report, confidence among consumers with incomes greater than $50K declined from 112.5 down to 111.1. Even after the decline, confidence among higher-earning consumers is still well above its historical average of 104.6. Confidence among lower income consumers with incomes between $35K and $50K, however, shows the complete opposite picture. In May’s report, sentiment for consumers rose from 73.5 up to 78.4, but even after that increase, confidence remains well below the historical average of 78.4. As shown below, while the confidence indices for both income levels bottomed out at right about the same levels in 2009, the gap between them has been widening over time. The reason for the wide gap is relatively straight forward: incomes have stagnated while asset prices have surged. Therefore, consumers with more investable income have seen their financial picture improve considerably more than those without investable assets.
The final chart below shows the widening spread in greater detail. Last May, the six-month average spread in confidence between both income levels peaked out a record 32.42. In the second half of the year, the wide gap corrected somewhat along with the stock market, but in the last couple of months, it has shot right back up again, following the lead of the equity market.