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Americans are less pessimistic about future income. Are bonds helping?

August 31, 2010 | 10:29 am

The Conference Board’s consumer-confidence index for August showed a bigger-than-expected rise -- to 53.5 from 51.0 in July -- which has helped the stock market move modestly higher Tuesday after Monday’s spill.

One encouraging bit of data from the confidence report, which surveys 5,000 U.S. households each month: The percentage of people who say they expect their income to be lower in six months fell to 16.1% from 17.7% in July.

The latest reading is the least pessimistic about future income since September 2008 -- just before the financial-system crash. It’s also well below the peak reading of 24.0% in February 2009, during the stock market’s final meltdown before it bottomed the following month.

Lynn Franco, director of the Conference Board’s consumer research center, called the trend a “stabilization in the negativity about income.”

But she noted that the percentage of people who expect their income to decline still exceeds the 10.6% who expect their income to be higher in six months. (Most respondents -- 73.3% -- expect their income to be the same.)

Given that income expectations help drive spending decisions, less pessimism about future income is better than more pessimism, of course.

And because most people’s income is from employment, the outlook for the job market is a major factor in respondents’ expectations about income. The Conference Board’s August survey found that 14.6% of households believe the employment picture will be better in six months, up slightly from 14.2% in July. A total of 19.4% expect the jobs picture to be worse, down from 20.9% in July. The rest expect no change.

For older people, expectations for investment returns -- on stocks, bonds, bank savings, etc. -- can be a key element of their overall outlook for income.

Two factors could be contributing to less pessimism about investment income. One is the huge asset shift many Americans have made into bonds and away from stocks over the last 19 months. That shift has paid off this year, with most types of bond mutual funds showing gains since Jan. 1 while most stock funds are in the red.

The average taxable bond fund was up 6.8% year-to-date through Thursday, while the average U.S. stock fund was down 4.6%, according to Reuters/Lipper data.

"Bonds probably are keeping [income expectations] from turning more negative," Franco said.

The other factor: With interest rates on bank savings accounts and certificates of deposit so ridiculously low, people know they’re earning nearly nothing on those accounts -- but they may at least figure that the worst that can happen from here is no change in those earnings, rather than another significant drop.

-- Tom Petruno