Prices Widening Confidence Gap Among Higher, Lower Income Groups

By Kathleen Madigan

Income inequality is nothing new within the U.S. consumer sector, but the recession created a new split between those who managed to keep their jobs and those who didn’t. The gap is widening now that staples like energy and food are much more expensive.

Consumer confidence edged up in April, but not everyone was happier. The gain in confidence was concentrated among those households earning $35,000 or more. The indexes fell among consumers with yearly incomes less than $25,000.

Higher-income families would be expected to be more upbeat than those earning less. But all income groups were nearly unanimous in their pessimism during the recession. In the fourth quarter of 2008, the indexes were separated by less than 10 points.

By this April, however, the highest earners’ index towered almost 43 points above that of the lowest earners.

One reason for the gap is that higher-income families have benefited more from the soaring stock market. 

Equity gains are helping to offset the accelerating drop in home values. Standard & Poor’s reported home prices in 20 major U.S. cities fell 3.3% during the year ended in February.

Another explanation is the unequal sting from rising gasoline and food prices. Higher costs for these consumer basics are eroding overall household buying power, but higher-income families are better able to absorb the increases.

Of course, gasoline prices typically increase in the months before the summer driving season. But this year, the runup has been turbo-charged.

In the previous decade, gas prices, on average, were up about 42 cents from the end of the previous year to the last week of April. This year the increase is 86 cents. (Even in 2008, when gas tipped over $4 a gallon by the summer, prices were up by less than 60 cents by the last week of April.)

More pain is on the way. As senior energy correspondent David Bird reports on Dow Jones Newswires, the recent rise in oil futures suggest retail gasoline prices will move toward $4 a gallon.

No wonder the confidence survey reported consumers think the U.S. inflation rate will tip over 6% a year from now. Yearly inflation, as measured by the total consumer price index, was just 2.7% in March.

The consumer split creates a bifurcation within the business sector as well. Luxury companies are doing well. 

Leather goods maker Coach Inc. reported Tuesday that its profits jumped 34% in the first quarter and comparable-store sales in North America increased 8.5%. High-end shoe maker Jimmy Choo is on the block, expected to fetch more than double what it sold for in 2007.

More downscale companies are seeking ways to lift revenue. Wal-Mart Stores Inc. is experimenting with home delivery in order to drum up sales, and consumer-goods makers, Kimberly-Clark Corp. and Procter & Gamble Co., are planning to raise prices.

Whether those price increases stick, however, will depend on consumers lower down the economic ladder feeling better about their economic future.

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