Upper-Income Consumers Shaken by Financial Crisis

by Dennis Jacobe, Chief Economist

Became more pessimistic last week

PRINCETON, NJ -- Upper-income Americans grew much more negative about current economic conditions last week in the midst of the worsening financial crisis and the proposed Treasury Department bailout. The percentage of upper-income Americans rating the economy "poor" increased by 15 points, from 26% during the first week of September to 41% during the third week. In sharp contrast, the economic attitudes of lower-income consumers -- which were already quite negative -- remained essentially unchanged, with 54% describing current economic conditions as "poor."


Pessimism Surges Among Upper-Income Americans

Earlier this year, consumer pessimism surged in response to soaring gas prices at the pump. While Americans in all income groups were affected, lower- and middle-income consumers suffered comparatively more than upper-income consumers. By comparison, the current financial crisis has had a disproportionately heavy impact on the attitudes of upper-income consumers, not only turning their ratings of the current economy much more negative but also increasing their pessimism about the economy's direction.

The percentage of upper-income consumers saying the economy is "getting worse" dropped to 70% in the first week of September in response to lower gas prices, but it has jumped 17 points to 87% in the third week of the month. While lower-income consumers' expectations have fluctuated, they have been consistently more negative, with 80% or more saying things are getting worse throughout September.



Although upper-income consumers are still less pessimistic about the current economy than are those with lower incomes, the sharp increase in pessimism among the former group could have significant implications for the economic outlook, the holiday season, and upscale retailers. This is particularly the case if consumer ratings of the current economy and of the economic outlook continue to deteriorate, as they have in the first couple of days this week.

Prior to the past couple of weeks, soaring gas prices reduced discretionary consumer spending and combined with the depression in autos and housing to slow the economy. For retailers, this has meant consumers have been buying more downscale goods, benefiting low-cost providers. And although upper-income consumers have continued to spend and have kept retail sales from plummeting, high gas prices have also led to general pessimism about holiday sales.

The current financial crisis and its impact on upper-income consumers suggests these patterns are likely to take another turn -- and not for the better. As upper-income consumers pull back, overall retail sales should drop more precipitously and downscale buying should continue to increase. The Christmas holidays should be even weaker than already anticipated, particularly for upscale retailers.

Politically, the data show a surge in Republican pessimism as well as greater pessimism among independents. In this regard, John McCain could be hurt as he and the Republicans seem to have been more blind-sided by the crisis than Barack Obama and the Democrats. Obama could benefit from the desire to significantly change what has been done during the recent past. On the other hand, McCain could benefit if Americans seek a more experienced leader to deal with the current financial crisis and its fallout over the next couple of years.

Survey Methods

Gallup is interviewing no fewer than 1,000 U.S. adults nationwide each day during 2008. The economic questions analyzed in this report are asked of a random half-sample of respondents each day. The results reported here are based on combined data of more than 8,000 interviews in August. For results based on this sample, the maximum margin of sampling error is ±1 percentage point.

The questions for individual weeks are based on combined data of approximately 3,000 interviews for the week of Sept. 1-7, Sept. 8-14, and Sept. 15-21, 2008. For results based on these samples, the maximum margin of sampling error is ±2 percentage points.

Interviews are conducted with respondents on land-line telephones (for respondents with a land-line telephone) and cellular phones (for respondents who are cell-phone only).

In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.

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