Americans Won’t Be Easily Reassured About the Economy

Improving jobless figures may not be enough to dispel their legitimate worries that they are falling behind.

MIAMI, FL - MAY 02: People looking for work stand in line to apply for a job during a job fair at the Miami Dolphins Sun Life stadium on May 2, 2013 in Miami, Florida. If voters approve a hotel tax hike to fund stadium renovations the jobs would be available. If not, the Dolphins management is indicating they would not be able to renovate the stadium nor create the jobs. 
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Charlie Cook
Dec. 12, 2013, 4 p.m.

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.


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