The US middle class is reportedly still in distress, although the economic recovery is now 68 months old. Politicians on the left and the right share this view, and blame each other for causing this sorry mess. It’s not at all obvious that the middle class agrees. Consider the following:
(1) Monthly optimism. I derive the Consumer Optimism Index (COI) by averaging the Consumer Sentiment Index and the Consumer Confidence Index. My COI dipped during February to 95 from a cycle high of 101 last month. Both readings are consistent with previous cyclical highs in the index, with the exception of the blowout readings during the second half of the 1990s.
(2) Weekly comfort. The strength in consumer optimism surely can’t be attributed to the “Top 1%.” There aren’t enough of them to move the needle. Apparently, the “Bottom 99%” didn’t get the memo that they should be miserable, or at least pretend to be so. Bloomberg’s weekly Consumer Comfort Index corroborates the upbeat readings of the COI. The weekly components of the weekly Bloomberg measure--including the state of the economy, personal finances, and buying climate--all are back to the previous cycle’s highs.
(3) Misery Index. My COI is highly inversely correlated with the Misery Index, which is simply the sum of the core PCED inflation rate (on a y/y basis) and the unemployment rate. The Misery Index fell during December to 6.9%, the lowest since February 2008. It tends to fall during bull markets and rise during bear markets. The index is also highly inversely correlated with the S&P 500 forward P/E.
Today's Morning Briefing: Exuberance. (1) Is the middle class really distressed? (2) Consumer Optimism Index near previous cyclical highs. (3) Misery Index lowest since Feb. 2008. (4) Spending less on gasoline, more on health care. (5) Bullish sentiment is almost off the charts. (6) Energy and REITs inflate S&P 500 forward P/E. (7) Expensive sectors are the defensive ones such as Consumer Staples and Utilities, which makes them less defensive. (8) Financials and IT sectors are relatively cheap. (9) Focus on overweight-rated S&P 500 Health Care.
