Consumers Remain Uncertain In Spite Of Increased Net Worth
Sober Look | Aug 29, 2012 06:03AM ET
The weak consumer sentiment number today was a surprise. After all, the S&P 500 index is up 13.7% year to date (including dividend). The recent equity market rally should have boosted the consumer net worth and improved consumer confidence.
A quick empirical analysis (below) shows that a large portion (r^2 =84%, beta = .33) of the change in consumer net worth is explained by the moves in the stock market. This is a recent relationship, as the US consumer exposure to equities has been larger over the past 20 years than previously (the relationship was weaker during the previous 30 years: r^2 = 68%, beta = .18).
In fact, the US consumer wealth has increased considerably since the financial crisis, to a large extent driven by the stock market (particularly given that housing has been stagnant until very recently).
But increased wealth does not seem to be improving how consumers feel. Actually over the past few months the divergence between consumer sentiment and the equity market (which reflects improved net worth) is quite striking.
Something is spooking the consumer enough to cancel out the effects of the market rally. And the divergence is not just with the market. The WSJ : At some point, both sets of data points will start moving closer in tandem. “By its very nature this divergence is unlikely to persist,” ... “Our expectation is that the convergence will be toward the sentiment indicators, suggesting that the current upturn in economic momentum could prove fleeting.”
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