There’s a great mismatch between the way people feel about the economy and many of the underlying trends.The sentiment says recession, but much of the underlying data suggest growth.
The Thomson Reuters/University of Michigan measure of consumer sentiment, released Friday morning, showed consumer confidence fell and that consumers’ expectations for the future are at their lowest level in 30 years.
They’re not the only ones worried.
Lakshman Achuthan of Economic Cycle Research Institute, perhaps the most reliable forecaster on changes in the business cycle, recently told the Daily Ticker he believes a recession is unavoidable.
And yet the numbers continue to tell the story of a grinding, continuing recovery that, in some ways, appears to be accelerating. Amid the rising gloom, the data flow in recent weeks has generally been positive. Retail sales, reported this morning, were up strongly in September, up 1.1 per cent from August; August’s figure was revised upwards.
Compared with a year ago, retail sales are up 8 per cent. They were led by strong car sales. After putting up a bagel in August, the economy added 103,000 payroll jobs in September, including 137,000 private sector positions. Overall GDP growth, which fell dangerously close to flatlining in the first quarter, in which it grew at just a .4 per cent annual rate, grew at a 1.3 per cent rate in the second quarter.
Macroeconomic Advisers, which tracks and continually updates estimates in real time with each new data point, currently has the third quarter expanding at a 2.7 per cent rate. The Conference Board Leading Economic Index pushes higher every month.
So what’s going on? Is all the data fudged? Is it simply backward-looking information telling us a positive story? I think of it as follows: The grind-it-out recovery continues. The underlying trends are moving in a positive direction, in many instances better than most people think and expect. But there’s an overwhelming sense of fragility due to three significant factors.
First and foremost, there’s the weak labour market. Go back and look at the Bureau of labour Statistics’ depressing monthly employment market update. It’s not simply that the unemployment rate is at an elevated 9.1 per cent, or that the U-6, a broader measure of un- and underemployment, is at 16.5 per cent.
Rather, the equation between management and labour has shifted drastically in the past several years. Simply put, capital is beating the living daylights out of labour. Personal income fell in August from July. Corporate profits bounced back impressively since 2009, but between June 2009 and June 2011, real household median income fell 6.7 per cent. Workers’ share of income has fallen to historic lows. (Check out this chart, courtesy of Mark Thoma at Economists’ View).
Second, call it muscle memory, or post-traumatic stress disorder, or the new normal. But Americans remain shocked and traumatized by the events of the fall of 2008 and the deep recession of 2008-2009. A dog that’s been repeatedly abused cowers the minute someone — even someone with good intentions — raises his hand.
The American public is like a dog that’s been kicked one too many times. The cascade of failures, the massive job loss, and the huge declines in home equity, have altered sentiment, psychology and actual behaviour. Each time there’s a new trauma — a month in which there is no jobs growth brinksmanship that almost results in default, a downgrade by Standard & Poor’s, a damaging hurricane — Americans suffer flashbacks.
Third, beyond imagined threats, the world is a pretty dangerous place, full of potential shocks that can harm the U.S. economy. And because consumers and companies were caught unawares by the 2008 credit shock, they continue to take preventative action and be on the lookout for warning signs.
Many companies in 2008 suffered near-death experiences in 2008 due to a lack of cash; so today they stockpile it, and hesitate to invest or boost dividends. Meanwhile, there are plenty of potential shocks for which people should prepare: a Greek default, a new recession in the heart of Europe, instability in the Middle East, a sharp slowdown in China.
As the mood sours, the U.S. economy continues to grind its way, slowly, out of the deep hole of 2009. At present, the economic data we have points to a continuation of the current expansion, now in its 30th month, even if many people feel as if the recession never ended.
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