Outlook gloomy for the American economy

Dollar Store Nation: Lower Income Outlook Gloomy

The stock market gains of the last month may be making some Americans feel better about the economic recovery, but it’s not for lower income consumers. Many of those with a household income below $40,000 are earning less than they did six months ago and feel increasingly negative about the economy, according to a survey by MKM Partners.

A third of this group surveyed by MKM said that they are making less money than they did six months ago, while only 7 percent said they were making more. About 44 percent said they were taking home about the same. Almost half of the more than 700 members of the lower income population surveyed by MKM said they were getting "increasingly negative" about the economy.

"This group has made, and will continue to make, severe cutbacks in spending on more discretionary categories, such as apparel, electronics and other non-essential products," said Mike Darda, director of research and Patrick McKeever, senior analyst, at MKM Partners, in a report today. "One of the more important implications garnered from this study is that the dollar store channel has been and will continue be the biggest beneficiary during such difficult and uncertain times."

99 Cents Only Stores (NDN) hit a 52-week high today and Dollar Tree (DLTR), MKM’s favorite pick in the space, posted a one-year high earlier this week. Dollar General (DG), which Kohlberg Kravis Roberts & Co brought public again at the end of last year, raised its profit outlook for 2010 last month. Another beneficiary could be Wal-Mart as the lower income group perceives this store to have the lowest prices overall, the survey showed.

The 40 percent-plus gains by 99 Cents and Dollar Tree dwarf the mediocre returns in higher-end retail chains Nordstrom’s and Tiffany’s this year.

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