The Strange Spread No One’s Talking About

Feeling good, like I should.

My three kids sang the lyrics to Surfaces’ “Sunday Best” over and over again during the 14 hours we spent in the car during their spring break vacation.

And as I tried my best to take a break from work while I was with my family, the catchy pop tune still got me thinking about the mood of consumers right here … are we feeling good or not so much?

After all, a lot has changed in the past six months.

Jobs are plentiful, wages are rising and household wealth is hitting the highest levels ever. But prices for just about everything are surging … from food to gas, even used cars.

So, are consumers feeling taxed by inflation, or empowered from the wealth effect and rising incomes?

Since consumer spending makes up 70% of the economy, it’s an important question. And the answer has big implications for corporate profits and stock prices.

Wealth Inflation or Just Inflation

By the numbers, things seem to be looking up for the consumer.

The most recent jobs report shows the unemployment rate at just 3.6%, while wages jumped 5.6% compared to last year.

Asset values keep going up too. Like home prices that climbed 19% last year … the largest gain on record. And stock prices are hovering near all-time highs.

That’s creating a wealth effect for households whose collective net worth topped $150 trillion for the first time ever at the end of 2021.

At the same time, the biggest surge in inflation in 40 years is taking a big bite out of that good news.

Take gas prices, for example. The national average recently peaked at just over $4.25 a gallon … the highest ver. I certainly felt the pain at the pump driving over 700 miles last week!

But back to the question about prevailing consumer optimism … or lack thereof.

Because two key surveys of consumer mood are currently telling different stories, and that’s historically been a warning sign for investors.

Survey Says… “It’s Complicated?”

This isn’t an unprecedented situation, but it still might be cause for concern.

On one hand, The Conference Board’s Consumer Confidence Index remains at high levels. But another popular gauge from the University of Michigan (UofM) has plunged to the lowest level in a decade.

Here’s why…

The Conference Board’s measure places a greater emphasis on the jobs picture and feelings about the overall economy. The UofM survey, on the other hand, is more concerned about your personal situation and finances.

And when a big gap opens up between the two measures … watch out. That’s because it shows consumers are becoming more negative on their personal situation despite perceived strength in the economy.

That change in mood can lead to dicey times.

You can see that in the chart below from SentimenTrader.

Notice other times when the spread between these consumer surveys becomes deeply negative … like before the dot-com bust, the 2008 financial crisis and just before the economic shock from the pandemic. As you might surmise, stock prices didn’t fare well either.

(Click here to view larger image.)

Now, this alone isn’t a reason to dump stocks and go to cash. But it does highlight the importance of continuing to track the pain points for consumers, and how that may impact the outlook for spending.

And that’s why it’s more important than ever to stay focused on the Big Picture. Today’s markets are showing short-term strength, but without the faith of consumers that could change very rapidly.

By the way, the next line of those “Sunday Best” lyrics end with “never stressed…” I’m not sure consumers feel that way at the moment.

Best regards,


Clint Lee
Research Analyst, The Bauman Letter

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