How Many Americans Have Money on the Line Amid All the Market Volatility?

BY Dante Chinni  August 19, 2011 at 2:19 PM EST

Traders work on the floor of the New York Stock Exchange Friday in New York; photo by Scott Eells/Bloomberg via Getty Images

In an unstable time, the Dow Jones industrial average has become something of an economic zeitgeist checker. It’s portrayed as a kind of national economic Twitter feed — the country’s economic hopes and fears neatly wrapped up in a few characters.

As President Obama addressed the country during one recent big Dow drop, CNN showed what the DJIA was doing as he spoke, as if Americans all over were trading based on what he was saying.

So exactly how serious an indicator is the Dow to the overall direction of the U.S. economy? In real terms, Patchwork Nation thinks the power of the 30-stock index may be oversold, particularly when you look at stock ownership in the United States.

Nationally, stock ownership stands at only about 54 percent and in many of our 12 Patchwork Nation county types it stands at or below 50 percent. That’s not to say the health of the Dow or the stock market in general is not important, but in many counties there are much bigger factors driving the economic unease.

Should the market woes continue, though, psychological impacts could play a big role in 2012 because of the communities they hit hardest: the wealthy, swing-voting Monied Burbs where the most stockholders live by far.

One Community’s Leading Indicator

Cruise through a night of television ads and you might think everyone in America has an online trading account they are regularly tending to depending on current market conditions. But you’d be wrong.

In five of our 12 Patchwork Nation county types, 50 percent or fewer of the households have stock portfolios of any kind, including retirement accounts. Those county types are the socially conservative Evangelical Epicenters (14.6 million people), heavily Latino Immigration Nation (18.8 million), heavily black Minority Central (13.3 million), small town Service Worker Centers (30.6 million) and LDS adherent-filled Mormon Outposts (1.8 million).

That’s more than 1,000 counties (nearly a third of the U.S. total) and millions of people for whom the Dow and other daily stock market averages really are, mostly, just some big numbers.

Those county types share some common traits. They all have lower-than-average median household incomes and most of them are above the national average for unemployment. For them the other “indicators” that drive the stock indices — jobless claims, foreclosures, construction — are the indicators that actually drive their lives.

Many of those communities we have visited this year — like Nixa, Mo., an Evangelical Epicenter, and Lincoln City, Ore., a Service Worker Center — said they still felt very much like they were in the middle of a recession. To them, the stock market’s recent struggles are not a leading or lagging indicator, merely a reflective one.

And even in the counties where the numbers for stock ownership are higher, most people are not active traders as we have shown in more in-depth reportage. So the idea of average Americans moving money to bonds or gold to protect their portfolios as they watch speeches probably overestimates the reality — though big institutional investors, who hold much of average Americans’ investments, likely do that.

These stock ownership numbers are significant in part because they come from a very large sample. Patchwork Nation analyzed data from the massive Cooperative Congressional Election Study, a survey of more than 30,000 people in 2008 that we received from our partnership with American University.

The Statement in the Mail

Of course, some people are out there trading, or more likely going to the mailbox or their inbox every month, to see what’s happened to their retirement plan.

And the question for people in those places may be the same ones Patchwork Nation has been asking since the Dow’s troubles began: What exactly is driving the stock market tumult? The U.S. economy has been struggling for some time, is it really any different fundamentally from where we were a few weeks ago?

Of all our county types, the Monied Burbs stand out in this survey’s results with 62 percent of the households invested in the market in one way or another. That’s 8 percentage points above the national average and 6 percentage points above the next-highest group, the educated Campus and Careers communities.

And this is where the impact of the sliding markets can play a real role in two ways.

First, politics. Patchwork Nation was on the road in fall 2008 visiting a Monied Burb — Los Alamos, N.M. — when the last big market crash happened. Talking to people there at the time, there was little question that the tumbling numbers caused people to think hard about their futures — and their votes.

Sen. John Kerry took 47 percent of the Los Alamos presidential vote in 2004. Barack Obama took 53 percent in 2008. And Mr. Obama won in 2008 largely on the strength of a 10-percentage point margin in the Burbs. Those kinds of numbers would be unlikely in 2012 with the stock market struggling.

And second, psychology. The Monied Burbs counties have been least affected by the recession in many ways. They are, for the most part, educated, wealthy and have savings to fall back on.

But as we have noted in previous posts, they are critical to restarting the U.S. economy because of their spending power. If they are nervous about their retirement plans, they may be less willing to spend and that will further restrain spending and that’s not good.

That means even if the Dow isn’t, as some media indicate, a minute-by-minute tock-tock of American economic sentiment, its power extends beyond who owns stock. It’s not about what the Dow actually means, it’s about what people in the wealthy places think the Dow means. And every day of dips only increases their anxiety.