Consumer Confidence Dips Except for Wealthy Stockholders

Consumer confidence has plummeted to near-record lows due to the ongoing government shutdown, yet a notable exception exists among affluent stockholders. The initial reading for the University of Michigan’s sentiment index fell to 50.3 in November from 53.6 in October, approaching the all-time low of 50 recorded in June 2022, when inflation reached a peak post-pandemic.

Joanne Hsu, the survey’s director, stated, “With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy.” This decline in sentiment was widespread, affecting various age groups, income levels, and political affiliations. Nonetheless, the top tercile of stockholders reported an unexpected 11% increase in sentiment, buoyed by resilient stock market performance.

The survey’s results were captured before the recent elections, highlighting ongoing voter discontent regarding rising food and energy prices. Notably, it did not account for the recent stock market downturn, which saw the Nasdaq experience its worst weekly loss since significant market disruptions in April. Investor concerns about the sustainability of the booming artificial intelligence sector have contributed to this volatility.

Disparities in Consumer Sentiment

The relationship between the stock market and consumer sentiment has shifted in recent years, with increased stock ownership among diverse income groups. A separate report by the University of Michigan indicated that participation in the stock market has surged among lower-income individuals, while younger and older investors are increasingly matching the levels seen in middle-aged demographics.

For example, a survey from the BlackRock Foundation and Commonwealth revealed that over 54% of Americans earning between $30,000 and $79,999 annually are now retail investors, with more than half of this group entering the market within the past five years. This trend highlights a divergence in sentiment: investors are becoming more optimistic, while non-investors are increasingly pessimistic.

Hsu noted that sentiment among stockholders has been on the rise since May, following a dip in April when former President Donald Trump enacted tariffs that shocked global markets. In contrast, non-stockholders have experienced a continued decline in sentiment, reaching post-pandemic lows.

The Wealth Effect and Economic Implications

The phenomenon known as the wealth effect has intensified over the past 15 years, where rising asset prices significantly influence consumer spending. According to Oxford Economics, a $1 increase in stock wealth now leads to a $0.05 marginal propensity to consume, compared to less than $0.02 in 2010. This increase underscores the growing interconnectedness between stock market performance and consumer behavior.

The University of Michigan noted that the recent uptick in sentiment among wealthier households may mitigate the impact of an otherwise subdued economic outlook. These higher-income groups account for a disproportionate share of overall spending, which could support consumption even in a challenging economic environment.

This analysis provides insight into the current state of consumer sentiment amid economic uncertainties. As the government shutdown continues and inflation remains a concern, the stark contrast in sentiment between stockholders and non-stockholders illustrates a broader narrative of economic disparity in the current landscape.