Consumer Confidence Out of Sync with U.S. Stock Gains

Bloomberg Consumer Comfort Index diverges from Dow for the first time in 20 years

Main Street is out of step with Wall Street.

The Bloomberg Consumer Comfort Index has stalled near its recession average as the Dow Jones Industrial Average has risen 83% from a 12-year low in March 2009, according to the news service. A tight correlation between the index and Dow that lasted more than two decades has broken down as joblessness above 9%, stagnant wages and near $4-a-gallon gasoline outweigh the benefits of higher share prices, even after a 6.6% retreat in the Dow since the end of April.

“Consumers are fairly depressed, yet the stock market continues to improve,” Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott LLC in Philadelphia, said in an interview with Bloomberg. “It’s foreign demand that is really pushing corporate profitability. Consumer confidence is pretty constrained by the labor market.”

The news service notes U.S. manufacturers in particular have profited from faster growth in emerging economies, including Colombia and Indonesia, where expanding middle classes are demanding more roads and utilities, as well as higher-protein foods and more consumer goods. Deere & Co., the world’s largest farm-equipment maker, raised its fiscal 2011 earnings forecast on May 18 to $2.65 billion from $2.5 billion, citing increased demand for farm and construction machinery outside the U.S, along with growth in America.

Confidence among households making between $40,000 and $49,999 a year has averaged minus 46 since the recession ended, compared with minus 7.3 for people making more than $100,000 a year, who are most likely to be more-active stock owners. A reading of less than zero is negative.

“Higher-income people have greater exposure to the markets” while lower-income Americans are more focused on the “kitchen-table” issues of high unemployment and stagnant wages, Gary Langer, president of Langer Research, told Bloomberg.

Eighty-seven percent of Americans who make $75,000 or more a year own stocks, according to a Gallup poll conducted April 7-11. That compares with 54% of all Americans, the lowest share since Gallup began monitoring the data annually in 1999.

“Even as stocks have surged over the past couple of years, it has been hard for most Americans to understand what is happening on Wall Street and why, leaving them hesitant to invest,” Dennis Jacobe, Gallup’s chief economist, said in an April 20 statement.

Weekly earnings adjusted for inflation fell about 10% between 1979 and 2009 for the 74% of consumers without a college degree, compared with a 20% increase for people with a bachelor’s degree or higher, according to Langer’s research based on Labor Department data.

“There is a strong sense that the opportunity for prosperity is much diminished from previous generations,” Langer said. “If we wonder why so many people feel they’re doing less well financially, it’s because it’s true.”

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