Marketplace, July 7, 2004
The Conference Board reports that in June, consumer confidence in the economy reached its highest level in two years. This is an important indicator. When confidence is up, consumers are likely to spend more money, which gives the economy a further boost.
But here's a little-noticed fact: How confident you are about the economy depends largely on how much your family is earning. According to the University of Michigan survey of consumer sentiment, which takes account of income levels, families earning over $50,000 a year -- roughly, the top half -- are indeed much more optimistic. But among families earning under $50,000 -- the bottom half -- confidence in June actually declined.
Yes, the economy is bouncing back, and some families are starting to feel the benefits -- but not those in the bottom half. In fact, they seem to be feeling worse. Why? For one thing, the prices of food, gas, and health care have been rising briskly. The costs of these necessities take a bigger chunk out of the pockets of lower-income families. Interest rates are also on the rise, which imposes a particular burden on families with a lot of debt. Again, it's families with incomes under $50,000 that have the hardest time carrying it. Finally, take a close look at the jobs that are being created in this recovery -- for non-college grads, they're mostly jobs in the local service economy, with low pay and scant benefits.
This confidence gap may help explain something of a widening sales gap between companies that sell to these two different groups of consumers. Sales by upscale manufacturers and retailers are booming, exceeding expectations. But that's not the case for companies like Wal-Mart and Target, whose customers generally have lower incomes. Wal-Mart sales have been lagging. Last week, Wal-Mart lowered its official expectations. And Target said its sales are well below plan.
What we're witnessing in America is the emergence of two different economies with two contrasting rates of consumer confidence, and two very different levels of sales and commercial expectations. Yes, consumer confidence is up, overall. But that's on average. In a society that's continuing to see a larger and larger divide between the have-mores and the have-lesses, the "average" disguises what's really going on.
