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Economy
Upper-Income Consumers Drive Economic Optimism Higher
Economy

Upper-Income Consumers Drive Economic Optimism Higher

by Dennis Jacobe

PRINCETON, NJ -- Optimism about the U.S. economy among upper-income Americans has surged 67% since February, while that among lower-income consumers has increased 42% over the same period.

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Upper-Income Consumers' Optimism Increasing

While overall, Americans' economic mood has been decidedly more negative than positive for more than a year, Â鶹´«Ã½AV's Consumer Mood Index shows that upper-income consumers (those making at least $90,000 a year) were considerably more optimistic than those with lower incomes (those making less than $24,000 a year) during most of 2008. However, as the financial crisis unfolded, housing values plunged, and the equity markets plummeted, upper-income consumers' mood turned decidedly more negative -- ultimately surpassing the negativity among lower-income Americans as 2009 began. However, since April of this year, upper-income consumers have again become more optimistic than their lower-income counterparts. Not coincidentally, the surge in upper-income mood seems to parallel a similar surge in the value of U.S. equities.

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Economic Conditions

Over the past three months, the percentage of upper-income consumers rating the economy "poor" has fallen 16 points, but remains 8 points higher than a year ago. Similarly, the percentage of lower-income consumers rating the economy "poor" has fallen 13 points since February -- and this is 5 points better than a year ago.

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At the same time, the percentage of Americans rating the economy "excellent" or "good" has hardly changed among either income group and, for those with higher incomes, remains far below year-ago levels. Essentially, Americans see the economy as merely less bad right now.

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Economic Outlook

The percentage of upper-income consumers saying the economy is "getting worse" has plunged 31 points since February, and is much improved over a year ago. While the percentage of lower-income consumers with this view fell by only 15 points over the past three months, that is also 31 points better than a year ago.

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Similarly, the percentage of upper-income Americans saying the economy is "getting better" surged 29 points over the past three months to 42%, while the similar percentage increased 14 points to 35% among lower-income consumers. Considerably more Americans expect the economy to get better now than was true just a few months ago.

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Commentary

During the first half of 2008, economic optimism among lower- and middle-income consumers plunged, as gas prices hit new record highs and food prices seemed to follow suit. The impact of this surge in the price of necessities had less impact on the optimism of upper-income Americans, who have more disposable income to deal with such price changes.

The financial crisis in the second half of last year seemed to have just the reverse impact on Americans by income. The worst effects were felt by upper-income consumers, who saw their home values and equity investments plummet; lower- and middle-income consumers were also affected, but generally to a lesser degree. As a result, Americans of all income levels reflected a similarly extreme lack of economic optimism during late 2008 and early 2009.

However, since March 9, the equity markets have increased more than 25%, making everyone feel a little better and creating a surge of positivity in consumers' mood. At the same time, the announcement of the bank stress-test results was successful and the banking system showed enhanced stability. Not surprisingly, upper-income Americans, who tend to have comparatively more equity investments, have benefited the most from the resulting wealth improvement, and this appears to be reflected in their relatively greater optimism over the past two months.

The problem is that much of the surge in economic optimism -- and possibly in equity and commodity values -- seems to be based on hope and future expectations as opposed to a change in real economic conditions. While behavioral economics suggests that a positive surge in consumer psychology can produce an improvement in real-world economic activity, Â鶹´«Ã½AV's Monitor of Consumer Spending reveals that this has not been the case -- .

In turn, this implies that currently, other economic factors such as rising unemployment, sharply reduced credit availability, and the need to rebuild consumer balance sheets may be outweighing the surge in overall consumer optimism. In the weeks ahead, it will become apparent whether the much-improved consumer psychology will actually overcome these fears and stimulate increased consumer spending, particularly among upper-income consumers, or whether the reverse happens -- consumer psychology tumbles once again in response to the inability of the real economy, given increasing gas prices and higher interest rates, to match today's heightened expectations.

Survey Methods

The most recent results are based on telephone interviews with 12,510 national adults, aged 18 and older, conducted May 1-26, 2009, as part of Â鶹´«Ã½AV Poll Daily tracking. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±1 percentage point. Results for the subgroup of consumers making less than $24,000 per year are based on 2,183 interviews, with a maximum margin of sampling error of ±2 percentage points; results for the subgroup of consumers making $90,000 or more per year are based on 2,103 interviews, with a maximum margin of sampling error of ±2 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.


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