Distrust in government is at its highest level in recorded history. Americans are worried that the economy is cratering. Protesters in the Occupy movement are voicing the frustrations of an increasing number of people.
There is no question that these sentiments reflect a grim reality: the poverty level is up. Inequality has grown exponentially since the 1970s. The European debt crisis remains unresolved. Unemployment is stuck at 9 percent, and if you count the people who have either given up looking or those who have taken part-time jobs because they can’t find full-time work, close to one in six people is underemployed.
Yet by at least one measure, how people feel seems disconnected from how things are. Consumer confidence is back down to lows last seen during the depths of the Great Recession, despite the fact that the economy is still, believe it or not, growing.
On Thursday, the Commerce Department will announce its estimate for economic growth in the three months from July through September. The consensus is now for an annual rate of 2.5 percent. Although that’s certainly not enough to bring down the unemployment rate significantly or increase middle-class incomes, it does suggest that the economy is not currently on the cusp of a double-dip recession.
Yet consumer confidence, as measured by both the Conference Board and the University of Michigan/Reuters index, is down to lows last seen in the fourth quarter of 2008, when the economy actually contracted at an annual rate of 9 percent.
It’s possible that the dip in confidence is a precursor of an actual pullback in spending that would, in turn, push economic growth down. But for now, actual spending does not seem to reflect the gloom that people feel. Chain store sales are up, as are auto sales. Part of the reason car sales have risen is that the supply chain disruptions caused by the Japanese earthquake and tsunami have receded. But people still have to buy the cars that are being produced.
Cars are usually bought on credit, which means buyers are committing to a stream of payments into the future. The fact that consumers are purchasing autos, said Ben Herzon, senior economist at Macroeconomic Advisers, “suggests they are not feeling as glum as they are reporting.”
It is not unprecedented that consumers would feel much worse than they actually behave.
According to the Conference Board, people do take longer to recover from a recession than the official economic metrics, in part because companies do not tend to create a lot of jobs until they are sure that growth is going to last. “The labor market has a significant impact on confidence readings,” said Lynn Franco, director of the consumer research center at the Conference Board.
So between 1991 and 1994, confidence zigzagged up and down. Twice during 1992, a year after the recovery had begun, confidence dipped as low as it had been during the recession. And in early 2003, a year after growth had resumed following the 2001 recession, consumer confidence fell to a far lower level than it ever reached during the recession.
The gap between perception and economic growth this time around also has to do with jobs. Employers are simply not creating them fast enough to instill optimism. On top of that, political brinkmanship over the debt ceiling in Washington, the Standard Poor’s downgrading of the United States credit rating in August, and vast swings in the stock market have rocked confidence.
In fact, stock market volatility may be playing a larger role in the consumer mind-set than it has in the past. After Black Monday in 1987, when the Dow fell more than 22 percent in one day, the University of Michigan/Reuters index of consumer expectations, which records how consumers feel about their economic futures, fell just 7.7 points, said Ian Shepherdson, chief United States economist at High Frequency Economics. Since May of this year, that index has fallen more than 20 points.
And let’s face it, even at 2.5 percent growth in gross domestic product, no one would call that firing on all cylinders. The amount of time it is taking to recover from the financial crisis is throwing everyone.
“This recession, followed by sluggish recovery, is not the experience of pretty much anyone today,” Mr. Shepherdson said. “So for all intents and purposes nobody in America has any experience for an economy behaving like this. Economists don’t even understand it.”
He added: “So if people don’t really understand what’s going on in the economy, how can they frame reasonable expectations of where it’s going?”
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