PRINCETON, NJ -- Even as Wall Street seems to be ignoring a rash of bad economic news during the last few days before the Christmas holiday, consumers on Main Street are becoming more pessimistic in their economic outlook. The net difference between consumers who say the economy is "getting better" (13%) and those who say it is "getting worse" (83%) grew to -70 during the first two weeks of December, giving back most of the improvement seen in November.
Upper-Income Consumers Still More Pessimistic Than Lower-Income Consumers
In August, lower-income Americans (those with less than $2,000 in monthly household income) were more pessimistic than their upper-income counterparts (those with at least $7,500 in monthly income) about the future direction of the U.S. economy. Among lower-income Americans, the net percentage "getting better" (the percentage saying the economy was getting better minus the percentage saying it was getting worse) was -67 points, compared to -53 among upper-income households. Both income groups became more pessimistic in September, and by October, both groups had become about equally negative about the economic outlook.
In November, both income groups became less pessimistic about the economy, but the improvement was much more pronounced among lower-income Americans. And while both groups became increasingly pessimistic over the first two weeks of December, the gap widened as upper-income Americans expressed greater concern about the nation's economic outlook.
Commentary
One might reasonably expect an improvement in overall consumer confidence as Americans get ready to take a break for the Christmas holidays, during which they tend to put aside economic worries for a couple of weeks -- as seemed to be the case around Thanksgiving. Plunging prices at the gas pump and a seeming improvement in sentiment on Wall Street would also appear to support such an increase in confidence. Given this context and remembering that this has been a relatively short holiday sales season, it may be that many retailers are hoping for a last-minute surge in spending.
However, this does not seem to be happening. Surging unemployment, the continued housing depression, talk of automaker bankruptcies, and repeated warnings from economists and political leaders that the economy is going to get worse before it gets better seem to have succeeded in casting a substantial gloom over the holidays. As a result, it is not surprising that Gallup's 2008 Christmas spending projections show a 23% decline overall from 2007 and a 29% drop among upper-income consumers. In some ways, the holiday tradition of exchanging gifts may serve as a grim reminder of the difficult economic times as many families are forced to scale back on gift-giving compared with prior years.
While it is always possible that Americans will go on a last-minute holiday spending spree, the recent sharp increase in consumer pessimism about the future direction of the economy suggests that is not likely to be the case. This may not only dash retailers' hopes of cleaning out their inventories in the last shopping days before Christmas but may mean even greater-than-normal post-holiday price cuts and a further profit squeeze. And the squeeze could be most intense among upscale retailers.
As the new Obama team and the new Congress make their plans to provide a major economic stimulus next year, they may find that not only is the credit system broken, but also much of the retail economy. On the other hand, there is hope that the new economic policymakers' efforts will combine with the recent unprecedented actions of the Fed to not only fix the nation's broken markets but also consumer confidence among all Americans beginning Jan. 20.
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 monthly results reported here are based on combined data of more than 8,000 interviews each in August, September, October, and November 2008. For results based on these samples, the maximum margin of sampling error is ±1 percentage point.
Results for Dec. 1-7 and Dec. 8-14, 2008, are based on combined data of more than 3,000 interviews. 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.
