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Consumer Confusion: Sales Up But Confidence Down — Here’s Why It Makes Sense

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A strange economic trend appears to be emerging with American consumers. Retail sales have been trending higher while consumer confidence is at a 30-year low.

Retail sales grew 1.1% in September, the fastest pace since February, we learned on Friday. Even excluding strong auto purchases, the figures were better than expected. Data for earlier in the summer was also revised for the better. All this, even in the midst of stock market tumult and fears of another recession.

Meanwhile, those same economic concerns are still weighing on confidence. Consumer confidence plunged more in October than expected, according to the Thomson Reuters/University of Michigan index. It's now at the lowest measure since May 1980.

How is this contradiction possible?

Howard Davidowitz, president of Davidowitz & Associates says it's simple. "We have got a bifurcation that keeps getting bigger and bigger," he explains to Aaron and Henry in the accompanying clip.

What accounts for the increase in sales is the top earners in the country are doing fine. "Ten percent of the consumers account for 40% of the spending," he says. This group is primarily made up of college graduates who are not suffering from massive unemployment. In fact, unemployment for that segment of the population is under 5%.

But, there's another larger group that's struggling to get by, which explains the consumer worry. "Eighty percent of consumers are in a depression," says Davidowitz.

It's this growing gap between the haves and have-nots that is responsible for the Occupy Wall Street movement, says Davidowitz. (See: Occupy Wall Street: Uprising a Response to "Bought and Paid for Politics," Davidowitz Says)

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