Confidence Gap Widens

by: Bespoke Investment Group

Consumer Confidence for the month of May was released earlier today, and the headline reading came in right inline with expectations at a level of 83.0. Outside of March's reading of 83.86, confidence for the month of May was the highest since February 2008, so in spite of the winter slowdown, consumers remain right at their most confident levels of the recovery/expansion. While confidence is high relative to the last five years, consumers are still far from enthusiastic based on a longer term perspective. As shown in the chart below, Consumer Confidence is still below the highs we saw prior to the recession, and way below levels we saw in the late 1990s/early 2000s.

In each month's survey on Consumer Confidence, respondents are asked whether they expect higher or lower equity prices in the months ahead. Just as surveys of individual investors like the American Association of Individual Investors (AAII) have routinely showed restrained levels of bullishness on the part of individual investors, this month's survey from the Conference Board showed that just 35% of respondents expect higher stock prices in the months ahead, while 27.9% of respondents expect stock price to decline. With respect to expectations for lower stock prices, the current level is near its lows of the bull market, but it is much higher than the last bull market when the percentage of people expecting lower stock prices routinely dipped below 20%.

Turning our attention back to overall confidence, this month we saw a continuation of the trend where the gap in confidence between upper and lower income Americans widened. During the month of May, confidence among Americans with incomes above $50K increased from 100.74 to 105.78, while confidence among consumers with incomes between $35K and $50K declined from 76.66 down to 72.36. This works out to a gap of 33.4 points, and it is the third widest spread on record. The theme of income inequality has really moved to the forefront in the last several months, most notably with the wildly successful launch of Thomas Piketty's Capital in the Twenty-First Century. One look at the chart below shows you why, as confidence among lower income consumers hasn't seen anywhere near the type of improvement than that of wealthier consumers.