In the Gallup survey for the week ending July 17th, overall U.S. Economic Confidence Index dropped to -17, the lowest point so far this year, matching the prior lows in late June and August 2015. How, one might ask, is this possible when the S&P has just reached a new all-time high and markets globally have rebounded strongly post the two day swoon of Brexit?
The index consists of both current and future forecasts and essentially ascertains whether individuals are more optimistic or pessimistic about their lives. The Current Economic Conditions Index has been stagnating in negative territory for a while now, with a downward trend. In breaking the reading down between current and future forecasts, it is clear that individuals are even more pessimistic about the future than they are about the present.
The index for future economic conditions dropped to -27, even lower than August last year – which was around the time that the markets fell over China growth concerns. Yet for now, markets are even higher and expectations for the future are even worse, so if the markets are not the reason for consumer pessimism, what is?
As we at MitonOptimal have been arguing for a long time, central banks have made the minority exceedingly rich, but this has not filtered down to the man on the street. Consumers don’t live in the Wall Street economy and their double-digit credit card interest rates don’t necessarily reflect the Fed’s zero-interest rate policy. Mortgage rates are low, but home prices have soared, and mortgage payments, taxes, and insurance have soared along with them. Real household incomes have languished for the lower 80% of earners, and real incomes have declined for the bottom third, if they even have jobs.
This feeling of gloom is not unique to the U.S. and helps to explain the disquiet we are currently seeing globally. As I have repeatedly highlighted, Brexit (remember Brexit!), was a vote against the status quo, as middle class voters have had enough of the rich enjoying all the spoils, whilst their standard of living has been consistently eroded. We are only going to see more of this anxiety in the months ahead, as election fever heats up across large parts of Europe. A recent very poor business confidence index reading in Germany, which also highlighted the gloom post Brexit is also a potential warning sign for future turmoil.
Markets might be enjoying their day in the sun, as the cavalry of central banks come to the rescue, but ever cheaper money is not cure for what ails the global economy. We need to see governments commit to fiscal spending programs, where the money is filtered down to all, before we can get very bullish on world stock markets.Why are people still gloomy?