Gallup reports U.S. Economic Optimism Plummets in March

Americans’ optimism about the future direction of the U.S. economy plunged in March for the second month in a row, as the percentage of Americans saying the economy is “getting better” fell to 33% — down from 41% in January. It is also down three points from the 36% of March 2010.

Overall Percentage Saying “Economy Is Getting Better”

Those Saying “Economy Is Getting Better” by Income Group

Those Saying “Economy Is Getting Better” by Age

Gallup results show that men are more optimistic than women and have been for 3 straight years. Difference is 0-5 points, currently 35 to 31.

Many in the age group 18-29 are in school, believing a job will await them on graduation. After graduation the realities of monstrous student debt and poor prospects of jobs will dampen that optimism.

Economic Ramifications

Economically speaking, while those in the 18-29 group are most optimistic, that is the age group least able to afford to buy things. In contrast, those 50-55 are in their peak earning years.

Those 65 and older have seen their cost of living rise and their income reduced. The stock market has not been kind over the course of a decade and many realize the next decade may be no better.

Look for spending in this age demographic to be health-care and food-related as opposed to spending on cars, boats, and gadgets. Those 85 and up will be seeking to downsize their homes, but who are they going to downsize to?

Thus, many in the 65+ age group have a legitimate worry they will “run out of money”.

Those 50 and up are starting to realize they have not saved enough for retirement and that will increasingly weigh on their minds.

Those who are pessimistic will attempt to save more and spend less of their earnings. Moreover, given the home equity extraction model is permanently closed, even spendthrifts will find the amount of money they can borrow is not what it used to be.

We have seen a bounce back in spending but how much more is there if consumers have become more pessimistic?

What pent-up demand for housing was wiped out by tax credits and pent-up demand for autos may soon hit a brick wall as well.

Expect to Hear the “R” Word

Expect to hear a few economists mention the word “recession”. However, even if the “R” word remains out of the picture, here is the question investors must ask: Is anemic growth or strong growth priced into the stock market?

On a global macro basis I see little reason to be optimistic, yet we have record high optimism about the stock market. Something has to give, and it will.

For further discussion of the economic slowdown and revised forecasts please see Exports, Imports, “Everything Weaker Across the Board”; Morgan Stanley Drops GDP Estimate to 1.5%; Expect to Hear the “R” Word Soon

Mike “Mish” Shedlock
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