Government Shutdown Drags Down Consumer Sentiment – Except for Stocks-Wielding Americans
Confidence Plunges to Near-Record Lows Amid Government Shutdown, Except Among Top Stockholders
The ongoing government shutdown has cast a shadow over consumer confidence, with the University of Michigan’s sentiment index plummeting to 50.3 in November from 53.6 in October. The decline marked almost a matching of the all-time low of 50 reached in June 2022, when inflation hit its post-pandemic high. According to Joanne Hsu, director of the survey, "With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy." The decline was widespread across different age groups, income brackets, and political affiliations.
However, one segment of the population has defied this trend: top stock holders. Hsu noted that these individuals saw a notable 11% increase in sentiment, supported by continued strength in stock markets. This divergence in consumer sentiment comes as stock ownership has broadened over the past five years into more income and age groups.
Stock Market’s Impact on Consumer Sentiment
The University of Michigan report from last month highlighted an increase in market participation among lower-income consumers, with participation rates among younger and older consumers catching up with middle-aged consumers. A separate survey by the BlackRock Foundation and Commonwealth showed that over 54% of Americans earning $30,000 to $79,999 a year are now retail investors in the capital markets. More than half of this cohort began investing in the past five years.
Stock ownership has highlighted a divergence in consumer sentiment: investors are turning more upbeat while non-investors have turned more pessimistic. University of Michigan data from October showed that participants with the top 20% of stock holdings are especially optimistic, reflecting the spilt in the K-shaped economy where higher-income Americans prop up consumption, while others pull back.
Wealth Effect and Consumer Spending
The so-called wealth effect of higher asset prices on consumer spending has become more potent in the last 15 years. A $1 increase in.stock wealth leads to a $0.05 marginal propensity to consume, up from less than $0.02 in 2010, according to Oxford Economics. The University of Michigan pointed out that sentiment among stock market participants had been on the rise since May—after tumbling in April when President Donald Trump shocked global markets with his "Liberation Day" tariffs.
By contrast, sentiment for non-stockholders continued to decline and had already hit post-pandemic lows. These patterns are consistent with the fact that strong asset values support consumer sentiment only for those who own those assets. Meanwhile, wealthier, higher-income consumers generate a disproportionate share of aggregate spending, which may help buoy consumption spending even amid views of the economy that are relatively subdued from a historical perspective.
Conclusion
The ongoing government shutdown has pushed confidence to near-record lows, except among top stock holders. The divergence in consumer sentiment reflects the broadening of stock ownership into more income and age groups. As the wealth effect becomes more potent, strong asset values support consumer sentiment only for those who own those assets. Wealthier, higher-income consumers may help buoy consumption spending despite relatively subdued views of the economy. The timing is notable given the recent stock market selloff that has investors concerned about the AI boom looking like a bubble that could pop soon.
Government Shutdown Drags Down Consumer Sentiment – Except for Stocks-Wielding Americans
Confidence Plunges to Near-Record Lows Amid Government Shutdown, Except Among Top Stockholders
The ongoing government shutdown has cast a shadow over consumer confidence, with the University of Michigan’s sentiment index plummeting to 50.3 in November from 53.6 in October. The decline marked almost a matching of the all-time low of 50 reached in June 2022, when inflation hit its post-pandemic high. According to Joanne Hsu, director of the survey, "With the federal government shutdown dragging on for over a month, consumers are now expressing worries about potential negative consequences for the economy." The decline was widespread across different age groups, income brackets, and political affiliations.
However, one segment of the population has defied this trend: top stock holders. Hsu noted that these individuals saw a notable 11% increase in sentiment, supported by continued strength in stock markets. This divergence in consumer sentiment comes as stock ownership has broadened over the past five years into more income and age groups.
Stock Market’s Impact on Consumer Sentiment
The University of Michigan report from last month highlighted an increase in market participation among lower-income consumers, with participation rates among younger and older consumers catching up with middle-aged consumers. A separate survey by the BlackRock Foundation and Commonwealth showed that over 54% of Americans earning $30,000 to $79,999 a year are now retail investors in the capital markets. More than half of this cohort began investing in the past five years.
Stock ownership has highlighted a divergence in consumer sentiment: investors are turning more upbeat while non-investors have turned more pessimistic. University of Michigan data from October showed that participants with the top 20% of stock holdings are especially optimistic, reflecting the spilt in the K-shaped economy where higher-income Americans prop up consumption, while others pull back.
Wealth Effect and Consumer Spending
The so-called wealth effect of higher asset prices on consumer spending has become more potent in the last 15 years. A $1 increase in.stock wealth leads to a $0.05 marginal propensity to consume, up from less than $0.02 in 2010, according to Oxford Economics. The University of Michigan pointed out that sentiment among stock market participants had been on the rise since May—after tumbling in April when President Donald Trump shocked global markets with his "Liberation Day" tariffs.
By contrast, sentiment for non-stockholders continued to decline and had already hit post-pandemic lows. These patterns are consistent with the fact that strong asset values support consumer sentiment only for those who own those assets. Meanwhile, wealthier, higher-income consumers generate a disproportionate share of aggregate spending, which may help buoy consumption spending even amid views of the economy that are relatively subdued from a historical perspective.
Conclusion
The ongoing government shutdown has pushed confidence to near-record lows, except among top stock holders. The divergence in consumer sentiment reflects the broadening of stock ownership into more income and age groups. As the wealth effect becomes more potent, strong asset values support consumer sentiment only for those who own those assets. Wealthier, higher-income consumers may help buoy consumption spending despite relatively subdued views of the economy. The timing is notable given the recent stock market selloff that has investors concerned about the AI boom looking like a bubble that could pop soon.