Some political analysts suggest the encouraging economic numbers released last week are a sign that the economy is improving enough to diminish the anti-incumbent mood that has seemed likely to become a dominant factor in the 2014 midterm elections. On the surface, that assessment would seem warranted. The Labor Department’s Bureau of Labor Statistics showed that unemployment dropped from 7.3 percent in October to 7.0 percent in November, with the economy creating 203,000 new jobs. The so-called U-6 unemployment rate — measuring the normal (U-3) unemployment rate, plus those working part time but seeking full-time work and those who have given up looking for work altogether — dropped from 13.8 percent in October to 13.2 percent for November. By comparison, in November 2012, the U-6 was 14.4 percent. A separate report from the Commerce Department’s Bureau of Economic Analysis announced that the final estimate of third-quarter economic growth — in other words, the rate of change in the gross domestic product — was revised upward from 2.8 percent to 3.6 percent, more than predicted; in the second quarter, the economy grew 2.5 percent.
Few economic benefits are trickling down to the poor or, for that matter, to the working and middle classes.
Conventional wisdom holds that if people see the economy improving, they will be less likely to “throw the bums out” in the next year’s elections. But the key is public perception of the economy, not month-to-month shifts in numbers. Although the National Bureau of Economic Research dates the last recession as beginning in December 2007 and ending in June 2009, according to polls taken as recently as this summer, a majority of Americans believe we are still in a recession. My hunch is that those analysts predicting that the new economic numbers will prompt a change in the political dynamics of 2014 are getting a bit ahead of their skis.
The first thing to keep in mind is that even as the reports last week showed lower unemployment, more jobs, and stronger economic growth, they also revealed that the nation’s overall personal income dropped by $10.8 billion, or a tenth of 1 percent. Disposable personal income dropped by $23.6 billion, or two-tenths of a percent, in October; Mesirow Financial’s chief economist, Diane Swonk, notes that gains in real disposable income came more from declining gasoline prices than higher wages.
In short, few economic benefits are trickling down to the poor or, for that matter, to the working and middle classes. Indeed, economists say the GDP growth came from a buildup of business inventory, which usually results in lower growth in subsequent periods, as owners draw down those inventories before manufacturing orders head back up. As the Dec. 10 Blue Chip Econometric Detail report, which accompanies the monthly Blue Chip Economic Indicators survey of top economists, put it, “The large upward revision to third-quarter GDP was due entirely to a $30 billion upward revision to inventory investment. The consensus anticipates GDP growth will slow sharply in the fourth quarter to 1.6 percent before rising to 2.5 percent in the first quarter of next year. GDP growth is expected to pick up gradually over the remainder of the forecast, reaching a 2.9 percent annual rate in the second half of 2014.”
Until people can see, feel, and touch a return to something approaching prosperity, the anxieties of the past five years will remain.
In short, the pros expect economic growth to drop sharply then gradually improve but not to the level of growth we saw in this past quarter at any point next year — i.e., not before the election. The Blue Chip survey of 56 top economists this month also forecast that the unemployment rate will average 7.2 percent in the fourth quarter of 2013, then improve only a tenth of a percentage point to 7.1 in the first quarter of 2014, another tenth to 7.0 percent in the second quarter, yet another tenth to 6.9 percent in the third quarter, and then fall to 6.7 percent in the fourth quarter of next year. The consensus forecast for all of 2014 was an unemployment rate of 6.9 percent. Among those economists surveyed, Morgan Stanley forecast 6.7 percent; Goldman Sachs, JPMorgan Chase, and Bank of America/Merrill Lynch all pegged it at 6.8 percent; Moody’s Analytics and Wells Fargo said 7 percent; and the U.S. Chamber of Commerce estimated the jobless rate at 7.2 percent. These are hardly “happy days are here again” numbers.
But even if economists thought the picture was going to get much better over the next year (and, generally speaking, they don’t), from a political perspective, the economy doesn’t get better until a wide swath of Americans believe it is getting better. While consumer-confidence ratings are generally higher than they’ve been for most of the time since the last recession began, they are well under the levels for most of the 25 years leading into the downturn. Until people can see, feel, and touch a return to something approaching prosperity, the anxieties of the past five years will remain.
From the end of World War II until the mid-1970s, incomes steadily increased pretty much across the board at remarkably similar rates among the top and bottom fifths of American households and the median in between. A separation between the top-fifth families on the one side and the median and the lower fifths on the other began around 1980, and it has grown wider ever since. The economic and polling data agree, underscoring what you hear in focus groups of working and middle-class people: They are working harder and harder and, at best, not getting ahead. Some are falling further and further behind. These recent numbers are hardly going to change that.