Despite their heavy reliance on credit, Americans do tend to spend more when and if they earn more. That's why it's generally a positive sign for the economy when Americans anticipate that their incomes will increase. Gallup polling from earlier in the summer* indicated that the percentage of Americans who anticipated an increase in their incomes in the next six months climbed from 39% in June 2004 to 45% in July 2004. Not surprisingly, the proportion of Americans who thought their level of spending would increase over the next six months also rose during that period, from 24% to 29%.
But any hope that these positive signals might indicate sustained economic momentum may have been premature. More recent data from August show that the number of Americans expecting their incomes to rise over the next six months regressed to 39%. The percentage who say that their level of spending will increase over the next six months also slipped slightly from 29% in July down to 26% in August. Further, the proportion predicting that their spending will decrease climbed from 19% in July to 25% in August.
Income expectations seem to be colored by political affiliation. With a Republican in the White House, Democrats are currently more pessimistic about their finances than are Republicans. In August, 47% of Republicans and independents who lean Republican said they anticipate that their earnings would increase in the next six months, while only 34% of Democrats and Democratic "leaners" felt the same way.
The partisan gap on the income question has remained relatively constant since the beginning of the year. With the exception of a slight fluctuation in June, the margin between the percentage of Republicans and the percentage of Democrats who expect their incomes to increase has hovered between 12 and 14 percentage points since January 2004. Thus, it's likely that the recent declines in income expectations are not political in nature but instead reflect a broader change in sentiment regarding earnings. Gallup's September update on personal income expectations -- to be conducted this week -- will confirm if the August decline was a temporary blip or the beginning of a downward trend.
*Results are based on telephone interviews with approximately 1,000 national adults, aged 18 and older, conducted June 3-6, July 8-11, and Aug. 9-11, 2004. For results based on the monthly samples, one can say with 95% confidence that the margin of sampling error is ±3 percentage points. For results based on monthly samples of Republicans or Democrats, one can say with 95% confidence that the margin of sampling error is ±5 percentage points.
