Consumer sentiment disappointed expectations in Friday’s only notable economic data release. This isn’t surprising considering the still exigent circumstances on Main Street.
The preliminary read on University of Michigan’s gauge for February was 76.2, down from 79 in January and a pretty sizable miss to consensus, which was looking for 80.9.Â
Indeed, to the extent you take estimates seriously, the range from 52 economists was 78 to 83, so the actual headline print was worse than even the most pessimistic guess.
The figure (above) is apples to oranges almost by definition. But spurious or not, the juxtaposition is pretty stark.
It won’t surprise you to learn that lower-income Americans are worried.
“The entire loss” of momentum in February’s initial estimate was “concentrated in the Expectation Index and among households with incomes below $75,000,” Richard Curtin, the survey’s chief economist said, adding that,
Households with incomes in the bottom third reported significant setbacks in their current finances, with fewer of these households mentioning recent income gains than anytime since 2014. When asked to assess their current financial position, the deep divisions become apparent: Among those with incomes in the bottom third, just 23% reported improved finances, the lowest since 2014; in contrast, among those with incomes in the top third, 54% reported their finances had improved. Mentions of income gains fell to just 17% among those in the bottom third, compared with 44% in the top income third.
That would appear to speak to the urgency of providing more relief to lower- and middle-income families, assuming anyone needed more evidence to make the case.
I suppose the cynical among you might argue that the apparent deterioration of lower-income individuals’ finances simply reflects the waning of previous stimulus, and is therefore artificial, in some sense. But that’s a pretty cruel way to think about things.
Disconcertingly, expectations fell despite efforts on the part of Democrats to make it clear that additional virus relief is imminent.
“Presumably a new round of stimulus payments will reduce financial hardships among those with the lowest incomes,” Curtin went on to say, before calling it “surprising… that consumers, despite the expected passage of a massive stimulus bill, viewed prospects for the national economy less favorably in early February than last month.”
This is crucial. For stimulus to “work” in a consumption-driven economy, those with the highest marginal propensity to consume have to be a semblance of confident in the outlook. Otherwise, they’ll just save their stimulus checks.
This becomes self-referential. If the labor market depends on the services sector coming back, which in turn depends on vaccine rollout, and consumer sentiment depends on labor market gains for services sector workers, you end up staring at a kind of vexing Venn diagram.
But hey, at least the stocks are fine (figure below).
Mr. Curtin’s sentiment index is capturing the psychology of consumer confidence. And this psychology is correlated to measures of social being. Many people, and, as cited, specifically the folks in the lower tiers, have to be emotional wrecks, insecure, and depressed. At this juncture, just flick out the checks so they can pay their water bills.
And this reminds me that the money multiplier is a topic that the economic and financial media echo chamber seem to no longer talk about.
The potential for structural damage to the economy that was discussed starting in the summer of 2020 is starting to manifest. In this case, the damage is to consumption. The income of these people is not coming back. Won’t be long before the forward GDP estimates take this into account…or don’t take it into account because the estimates are always too optimistic.
Bingo, I consider myself extremely fortunate as my income is tied to water and power and my wife’s to the medical industry. Even so we took a huge hit to our incomes last year all while expenses rose with temporary furloughs and layoffs. Of course it would be the year after we bought a house and got married and now we’re pregnant. We would not have been able to do anything last year but work and eat and pay bills without the stimulus. That’s still fortunate compared to many but that’s not a recipe for economic recovery when dual earning STEM households cannot drive consumption without government assistance.
We need to get regular people back to stability, saving and spending. We cannot let it be the case that only doctor’s, lawyers and executives are the only employees doing well.
Reading the title of this post reminded me of a fun article I read decades ago (when Norman Rockwell was still around) in the Saturday Evening Post. The piece was entitled, “Say Ranger …” It contained a compendium of statements made by tourists to rangers while visiting National Parks and other points of interest. The title came from one such remark, which I have never forgotten because it has a certain quality. A tourist in of of our magnificent cave systems turns to the ranger conducting the tour and thoughtfully observes, “Say ranger, you know the farther down we go, the deeper it gets.” Oh yeah.
Do we really need a study to show that the poor have money problems? Trouble is too few folks care about that because we know the poor are all Democrats, don’t make big campaign contributions and can be easily disenfranchised so we don’t have to worry about their problems. Some legislator in Kansas just introduced a bill to make it almost impossible for many of these people to vote. One of these bills comes up every year. Some have passed. Oh, and the legislature is considering a bill to cut taxes to the rich … again.
No need to worry! Didn’t one of the highly-revered Wall Street strategists recently declare that we will achieve herd immunity during the second quarter?
Well, unless something goes wrong. Something like this, perhaps?
https://news.sky.com/story/covid-19-scientists-label-mutation-found-in-bristol-as-variant-of-concern-12213581
Yardeni and Summers are blaming the lazy poor. What else is new. http://blog.yardeni.com/2021/02/help-wanted.html
Great headline, reminiscent of “America’s finest news source”, The Onion.