Higher-Income Americans Turning More Pessimistic

by Dennis Jacobe, Chief Economist

Views of upper- and lower-income groups tend to differ

PRINCETON, NJ -- Over the past several weeks, the percentage of consumers saying the economy is "getting worse" minus the percentage saying it is "getting better" has improved steadily, continuing to do so after the victory of President-elect Barack Obama. However, this improving overall trend in consumers' economic outlook disguises some significant differences by income.


Overall Economic Outlook Is Improving

During the week of Oct. 6-12, the percentage of Americans saying the economy was getting worse reached a new weekly high of 88% for the year, while 9% said it was getting better, producing a net "getting worse" score of 79. Over the next several weeks, consumer pessimism eased steadily, as the net getting worse score fell to 65 for the week of Oct. 27 to Nov. 2. Last week, which included Election Day, this measure of consumers' future expectations fell further, to 56.

Lower-Income Americans' Economic Outlook Is Improving

The percentage of lower-income consumers -- those with monthly household incomes of less than $2,000 -- saying the economy was getting worse was 84% during the week of Oct. 6-12, while 12% said it was getting better. This net getting worse score of 72 was essentially unchanged until the week of Oct. 27-Nov. 2, when it fell to 65. This past week, the net getting worse score fell to 46, reflecting a substantial improvement in lower-income consumers' expectations for the future.


Upper-Income Americans' Economic Outlook Is Deteriorating

The percentage of upper-income Americans (those with monthly incomes of $7,500 or more) saying the economy was getting worse surged to 92% during the week of Oct. 6-12 and only 7% said it was getting better, for a net getting worse score of 85. Although the weekly scores have been somewhat variable, net pessimism among upper-income households eased substantially to 58 during the week of Oct. 27 to Nov. 2. However, in sharp contrast to the continued improvement in expectations among lower-income Americans, upper-income Americans became more pessimistic last week, with a net "getting worse" score of 65.



If the sharp divergence by income in consumers' economic outlook continues, there are significant implications for the future of the U.S. economy. And it seems likely to continue, as lower-income Americans disproportionately benefit from plunging gas prices and from Obama's campaign themes that suggest he has their best interests at heart. Simultaneously, upper-income Americans are being disproportionately hurt by sharply lower housing prices, plunging stock prices, the consumer credit crunch, and Obama's proposed tax increases. Of course, for these reasons, consumer confidence also diverges along party lines.

More optimism among lower-income Americans and their having somewhat more in the way of disposable income as pump prices decline is clearly a positive for the future of the economy. These consumers will likely spend more going forward -- although less than might normally be expected, given the sharp deterioration in the jobs market and the continued credit crunch. Still, the net result could be positive for lower-end retailers like Wal-Mart and Family Dollar Stores.

However, less optimism among upper-income households is a much more significant problem for the economy. These consumers have the greatest amount of disposable income, and they continued to spend and keep the economy going even as gas prices surged. Now these upper-income consumers face not only the "wealth effects" associated with the declining value of their homes and investments, but also the risk of a worsening jobs market and an intense consumer credit crunch. The first to feel the brunt of the pullback in upper-income household spending have been upscale retailers, while lower-end retailers have benefited as these consumers are seeking the low-cost providers. And the fallout from declining upper-income consumer spending will spread as the firms that depend on that spending cut back and the jobs market worsens.

Gallup will continue to monitor and report on whether the divergence in consumers' economic outlook by income continues in the weeks ahead. Ironically, if this divergence continues and expands, the new Obama administration may end up looking for ways to also bolster overall consumer confidence among upper-income Americans when it takes office next year.

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 questions for individual weeks are based on combined data of approximately 3,000 interviews for individual weeks from Oct. 6-12 to Nov. 3-9, 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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