American sentiment remains weak despite encouraging improvement in economic fundamentals. We think sluggish growth in wages plays a major part in keeping optimism at bay.
The lack of real, or inflation adjusted, income growth explains why most Americans are not feeling better about the economy or their own prospects. Historically, income growth has been highly correlated with confidence. Higher levels of real income growth are associated with optimism, while stagnant income growth tends to be associated with lower levels of confidence (see below chart).