Consumer Confidence saw a larger than expected decline in April falling from last month’s reading of 96.1 down to 94.2 versus expectations of 95.8. As shown in the chart below, Consumer Confidence is hanging in there above its long-term average of 93.4, but the trend of lower highs is concerning.
For all consumers, the headline index for Consumer Confidence barely declined in April, but among lower middle-income consumers, confidence really plummeted. The chart below shows confidence among consumers with incomes of more than 50K and those with incomes between $35K and $50K. While the confidence index for consumers with incomes above $50K dropped from 116.4 down to 112.2, the index for those with incomes between $35K and $50K absolutely plummeted from 94.3 down to 71.0. For that cohort, April’s decline was the largest one-month decline since October 2008 and the fifth largest on record dating back to 1989.
It may seem odd to see confidence decline by so much for one specific income group of consumers, and while this month’s steep drop may have been an anomaly, it is part of a longer term trend we have seen for the last several years where confidence among higher income consumers has rebounded and held up much better than confidence among lower income consumers. As shown in the chart below, the six-month average spread between consumers with incomes above 50K and those with incomes between $35K and $50K rose to record levels from the 2009 lows through last May, saw a steep drop beginning last summer, and has since resumed its upward trend. So what could be driving this widening wedge between consumers of different income levels? One key factor is the stock market. In a seven year period where the stock market has roared while the actual economy has seen one of its slowest recoveries on record, the increased wealth effect of higher stock prices has had a disproportionate impact on consumers with more disposable income. Conversely, when the stock market declines (as it did in the second half of last year), you can expect to see the opposite pattern play out.
Speaking of the stock market, consumers currently have a mixed view. In this month’s survey, the numbers were pretty much evenly split between those expecting stock prices to increase (31.1%) and those expecting stock prices to decline (31.3%).