Economists are feeling pretty good these days. Millions of Americans wonder why.
The mood is buoyant among economists who have been probing the data for signs of a recovery—since there's finally something to cheer about. After two years of steep layoffs, the economy is now creating more jobs than it's shedding. Retail sales have been much stronger than expected, activity in the manufacturing and service sectors is picking up, the stock market keeps rising, and CEOs say they plan to hire. "These indicators are consistent with our notion of a strong rebound," says Bob Barbera, chief economist for forecasting firm ITG.
Americans will believe it when they see it—and so far, they don't. Consumer confidence is better than it was at the depth of the recession, but in general it has flatlined since last summer, and even fallen a bit by some measures. Gallup's economic confidence index, for example, is hovering at about the same level it was at last May. That's peculiar, since the economy was shrinking then and it's growing now. The gloom may be most pernicious among small businesses, which are supposedly the lifeblood of the American economy. Small-business optimism has actually declined recently, with the optimism index calculated by the National Federation of Independent Business stuck below a key threshold for 17 consecutive months. That's the longest sustained downturn in the 35 years NFIB has been collecting the data.
The confidence gap puzzles some analysts. "Why So Glum?" asked a front-page headline in the New York Times recently. But deep doubts about the recovery shouldn't be surprising. Economists are ecstatic about the 162,000 jobs created in March, for example, since it's the biggest positive number since early 2007 and a potential pivot point from job destruction to job creation. But 162,000 new jobs in a labor force of 154 million people is a tiny improvement that's invisible to most workers. It adds up to just 52 new jobs per U.S. county, or four new jobs per ZIP code. For many people, it would take 10 times as many new jobs before they knew a single person who benefited from the trend. And millions, meanwhile, still have friends or family members who are out of work.
The employment report that economists are so excited about also contained a fair amount of bad news that helps explain why so many Americans remain dour. The job gains came mostly in temporary services, healthcare, and manufacturing, plus the government hired 48,000 workers—nearly one third of all the new jobs—for the census. There were also significant increases in the number of people who are struggling for a variety of reasons. The number of long-term unemployed who have been out of work for 27 weeks is still going up, for example. So is the number of discouraged workers who have given up looking for a job, and underemployed workers unable to find a full-time job or put in all the hours they want. And 15 million Americans remain unemployed. That's an achingly high number no matter how familiar it begins to seem.
The employment data suggests that a significant portion of the workforce may simply end up locked out of good jobs, like unfortunate souls left on a sinking ship because there aren't enough life rafts for everybody. Economists believe that many of the 8.4 million jobs lost during the recession aren't coming back, because they occurred in sectors that are now able to substitute technology or foreign labor for American workers. Many others have taken pay cuts, with median wages likely to stagnate or fall in the foreseeable future. And since spending has risen by more than income recently, the boost in retail sales was probably a temporary spike that won't last.
Americans mostly know all this. Displaced workers whose jobs are gone know the future is bleak, especially if falling home values prevent them from selling and moving to an area with more jobs. Shoppers with depressed spending power know they'll have to get by with less, perhaps indefinitely. And many families are struggling to adjust to a standard of living that's starting to feel permanently lower. The way Americans feel is a lot less tangible than the data on sales or jobs, but we may be entering a phase of the business cycle where perceptions matter as much as reality. And if the economy doesn't feel better where you live, it's not really improving.