Wall Street has had a tough start to the year.
But Wall Street is not Main Street.
And according to Gluskin Sheff’s chief economist and strategist David Rosenberg, Main Street is doing just fine.
“Main Street continues to laugh at Wall Street,” wrote Rosenberg in a note on Wednesday.
“One theme we have been discussing for the last few months which we expect to play out over the course of 2016 is the divergence between Main Street and Wall Street.”
Rosenberg’s main argument stems from the recent release of the Conference Board’s Consumer Confidence Survey.
Tuesday’s release beat expectations, registering a 98.1 on the index against expectations of 96.5. As we noted after the release, Lynn Franco, director of economic indicators at The Conference Board said that regular people don’t care about the stock market.
“For now, consumers do not foresee the volatility in financial markets as having a negative impact on the economy,” she said.
Rosenberg figures that at the root of it all is job growth. Tuesday’s release is a confirmation that Americans are feeling pretty good about their job prospects.
“Indeed, we can get a glimpse of just how tight the labour market is from the Consumer Confidence survey where we see a sustained downtrend in people who agree that a job is ‘hard to get’,” said Rosenberg. “The per cent of respondents suggesting as much is down to 23.4% (the lowest in five months and just below the cycle-low set in August 2015 of 21.7%).”
This in turn helps boost the outlook for consumer spending, a massive piece of the global economy.
“The continued gains in the labour market are also translating into consumers planning on making large purchases of homes and major appliances,” wrote Rosenberg.
6.6% of people surveyed by the Conference Board said that were planning to purchase a home in the next 6 months, the highest since December 2013.
And 52.4% are planning to buy a major appliance, the highest since July 2010.
Continued confidence from consumers is important, as the spending by Americans is the engine of the economy. So as long as they expect to make purchases, it is reasonable to think the economy won’t fall off a cliff anytime soon.
On the other hand, Rosenberg noted that only 28.7% of people surveyed by the Conference Board have a positive outlook on stocks, the lowest since December 2012.
“Which goes to show how employment conditions, wages, gas prices and real estate values are exerting and overwhelming influence over consumer sentiment, but not translating into optimism nor participation in the market,” he wrote.
It seems that in a January in which Wall Street is melting down, Main Street is focused on shopping for a new washing machine.
Or as Rosenberg noted, “In a month where we saw the worst start for a year ever on Wall Street, Main Street seems to have entirely shrugged off all the negative financial media.”
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