Profits on Wall Street Up; Consumer Confidence Down

Earnings on Wall Street have been good, and equities got back to even for the year briefly earlier this week. Still, Gallup's measurement of economic confidence -- a measure of economic perceptions on Main Street USA -- has declined in June and July, as was belatedly reinforced by Tuesday's Conference Board report that consumer confidence fell for the second month in a row in July.

This raises the issue of whether Wall Street can continue to prosper as Main Street continues to struggle. It might be so if international companies can continue to earn, grow, and hire overseas even as the domestic economy slows. In fact, a really strong global economy might eventually increase domestic consumer optimism on Main Street.

More likely, recent strong earnings reports reflect "economy past," while Gallup's current measurement of consumer confidence today reflects "economy future."

What to Watch for This Week -- Emergency Unemployment

Today, President Obama made a pitch for Congress to extend emergency unemployment insurance payments. Tuesday, the Senate will consider the issue once more. Whatever the ideological differences, Gallup underemployment data suggest immediate action is essential -- far too many Americans are looking for a full-time job for Congress to deny this minimal expansion of the social safety net.

Wednesday and Thursday Federal Reserve Board Chairman Ben Bernanke will update the Fed's view of the economy. Based on Gallup's economic confidence and spending data, it seems obvious that Bernanke will suggest that the economy is progressing more slowly than the Fed had hoped earlier this year.

Finally, there is likely to be a lot of global attention focused on Friday's European bank stress tests. Gallup's monitoring of the U.S. stress tests showed they were surprisingly effective. Whether the experience in Europe will do likewise is still an open question with global financial consequences.

More Bad Economic News for Incumbents

Insights into the U.S. economy turned fairly negative in the past couple of days: a decline in retail sales, a downward revision in the FOMC's expectations, and declines in the Empire State Manufacturing Survey and the Philadelphia Fed survey. And, Gallup's data suggest that tomorrow's consumer sentiment index is likely to take a tumble, adding another negative to the list.

Amazingly, the percentage of Americans saying the economy is "getting worse" is now at its high since late March 2009. Not likely to be good news for the incumbents of either party as the midyear elections approach.

What to Watch for This Week

The Commerce Department reports retail sales on Wednesday and expectations are that they will be flat on an ex-autos basis -- down when autos are included. Gallup's self-reported spending data excludes many items included in the government's retail sales measure, but June's spending was down supporting the idea that retail sales were flat or declined. Early July spending was up for the week of the 4th, but fell again last week.

Initial jobless claims will be reported as usual on Thursday and the numbers to be reported are anybody's guess given the holiday week distortions. Gallup's Job Creation Index improved slightly last week while Gallup's underemployment measure is at 18.2% -- essentially where it was in June (18.3%) -- and suggests that the job market continues to stabilize.

The week winds up with the Reuter's/University of Michigan's consumer sentiment preliminary report. Given that the Index reportedly increased last month -- when Gallup and the Conference Board showed a decline -- Friday's consumer sentiment report should show the Index plunging. Particularly given the continued decline in Gallup's measurement of Economic Confidence.

While this week's economic data isn't likely to be very upbeat -- even after last week's surge in the equity markets -- Gallup's standard of living measure for June provides a basis for some much needed optimism. More upper-income Americans are optimistic about their standard of living now than at any time since March 2008. And, other middle- and lower-income Americans are similarly optimistic, although they have been so for the past couple of months. This means Americans' personal balance sheets are healing, and as time passes, households are building the firm financial foundation we need for future economic expansion.

Greenspan's Invisible Wall

Former Federal Reserve Chairman Alan Greenspan told CNBC on Thursday that "the economy hit an invisible wall in early June." Gallup's economic data tends to support this assertion as economic expectations fell in May, worsened in June, and continued to deteriorate once again in early July.

At the same time, Gallup spending data show a decline in June compared to May but a slight increase over a year ago -- consistent with Thursday's Chain Store Sales reports -- and a weakening consumer outlook.

While 18.2% of Americans are underemployed and the U.S. economy is slowing -- suggesting most are destined to remain that way for many months to come -- policy makers in D.C. can't even agree on extending unemployment benefits to those unemployed the longest, as they battle over how or even whether to pay for them in the federal budget. They have another chance when Congress returns next week. This may be more important than previously thought -- if Greenspan is correct -- and the economy continues to worsen throughout the second half of 2010.

Gallup Economic Tracking Looking Prescient

On Thursday, July 1, Gallup reported: "Statistical analysis based on Gallup’s underemployment rate and Job Creation Index suggests the Bureau of Labor Statistics Friday morning will report a June unemployment rate in the 9.5% to 9.7% range, depending on the seasonal adjustments and size of the workforce. This contrasts with the consensus expectation of a slight increase in the U.S. unemployment rate, to 9.8%."

On Friday, July 2, the government reported that the U.S. unemployment rate fell to 9.5% in June from 9.7% the prior month.


On the prior Thursday, June 24, Gallup reported the headline, "U.S. Economic Confidence Depressed in June." This past Tuesday, June 29, the Conference Board reported its Consumer Confidence Index plunged in June.

Gallup's Daily tracking of key economic measures is thus looking prescient this week, as often has been the case. Our ability to get an advanced read on economic indicators such as consumer confidence, underemployment/unemployment, and consumer spending is the result of our continuous, nightly surveying of 1,000 respondents -- meaning Gallup survey results are more timely and more accurate than other survey-based indicators.