After more than a decade of disappointment, American consumers are now more hopeful than at any point since the housing bubble.
Those who think surveys of expectations have predictive power for spending and saving might therefore conclude the uptick bodes well for America’s growth outlook. However, a closer look at who exactly is excited about the future suggests there is less here than meets the eye.
Deutsche Bank’s Torsten Slok points out that the improvement in expectations is entirely due to Americans without a college degree, rather than those with greater spending power and higher earning potential. Americans with degrees have been getting steadily less optimistic since mid-2015.
The groups responsible for the aggregate change in sentiment are the least likely to experience big real wage increases and therefore the least likely to boost their spending. Moreover, they appear unwilling to translate their vague optimism about the future into specific expectations about behaviour.
So even if those expectations were reliable guides to the actual choices people make — something strongly debated among forecasters — there is little reason to believe the “Trump bump” in consumer sentiment is a harbinger for sharply rising real spending.
Worse than not affecting real spending, what happens to the disappointment when the optimism isn’t delivered?