One of the most peculiar dichotomies right now is that the major stock indices are at record highs, yet investor sentiment isn't all that bullish.
To many, that means the stock market still has a good bit of room to run before it gets to a really silly state of complacency. For others, it is a reflection of the mistrust of this bull market among individual investors and a latent fear that it is going to suffer a correction of some kind soon -- perhaps a big one.
The latest data from the American Association of Individual Investors shows bullish sentiment among respondents at 39.6%, which is close to the historical average of 38.5%. Bearish sentiment stands at 26.9%, which is somewhat below the historical average of 30.5%; and those respondents with a neutral view of the stock market over the next six months rests at 33.3%, which is just above the historical average of 31.0%.
Basically, then, there aren't any real extremes in terms of investor sentiment.
That's not the case, however, in terms of consumer sentiment, which is as high as it has been in more than 10 years, begging the question why consumer spending growth hasn't matched consumer attitudes.
The Conference Board's Consumer Confidence Index stands at 119.8 after hitting its highest level in March (124.90) since December 2000. The University of Michigan's Index of Consumer Sentiment sits at 101.1, which is its highest level since January 2004.
The main difference between the two surveys is that the Consumer Confidence Index revolves around consumer attitudes about business and employment conditions, whereas, the Index of Consumer Sentiment flows from consumer attitudes about financial conditions and the economy.
Regardless of the approach, both surveys indicate that consumers are feeling as good as they have been in a long time about their employment and financial conditions.
That should mean some good things for consumer spending, shouldn't it? Well, yes and no.
Consumer confidence is part of the equation that goes into consumer spending, yet it it is the trend in disposable personal income (i.e. after tax) that really drives the sum of consumer spending, and that trend hasn't been nearly as upbeat as the trend in surveys measuring consumer attitudes.
Not surprisingly, real GDP growth hasn't been as upbeat as those consumer sentiment surveys either.
What It All Means
It certainly doesn't hurt matters that consumer sentiment is on the rise, yet it would help the economy a lot more if consumer spending growth mirrored those attitudes.
That won't happen without a pickup in disposable personal income growth, which is why a lot is potentially riding on the passage of a tax plan that lowers individual income tax rates and/or the willingness on the part of businesses to pay higher wages.
When disposable personal income goes up, increased discretionary spending will follow, as should stronger economic growth.
Consumer sentiment surveys look encouraging these days, yet they can't be looked at as a sure sign of things to come. What people say is one thing, but what they actually spend is quite another and primarily dictated by their disposable personal income.