Six years after the beginning of the financial crisis of 2008–2009, the best that can be said about the public mood in the United States is that people are no longer catastrophically pessimistic. Instead, they are deeply pessimistic. That is the read from the Gallup poll released on Tuesday, with economic confidence at a mere -17 (the difference between those saying the economy is improving and those stating it is getting worse). That number is substantially better than it was in 2009, and easily bests the -39 of November 2013. But it remains the case that far more people believe that the economy is getting worse than think that it is getting better.
And yet that sour mood is almost completely contradicted by almost every single economic indicator we have. The trajectory is not that things are getting worse. It is the opposite. Over the past year, the unemployment rate has fallen from 7.3 percent to 6.2 percent. Even the more revealing “U-6” unemployment rate—which adds in all marginally attached and temp workers who want full-time jobs—has dropped from 14.3 percent a year ago to 12.2 percent. Labor force participation remains low (62.9 percent) but only marginally less than it has been for the past two years. GDP growth, after a dismal annual rate of -2.9 percent in the first quarter, accelerated to an annual rate of over 4 percent in the second quarter. Inflation remains under 2 percent. Income, the most consequential number for most people, grew in 46 states in the first quarter, and grew at a faster rate than inflation. It grew as well in the last quarter of 2013. That follows a long period of middle-class stagnation and indeed decline in the years after the financial crisis of 2008–2009.
The picture of a stable, expanding, and just-shy-of-vibrant economy is amplified by what companies said when they reported second-quarter earnings in July and into August. With nearly 90 percent of S&P 500 companies reporting, not only were earnings above admittedly low expectations, but so were revenues. Yes, 73 percent of companies reported better earnings than expected, and yes, earnings grew at an 8.4 percent rate (according to FactSet). But earnings are more easily managed and manipulated than revenue. You can create good earnings optics by laying off workers or cutting production. Revenue, however, is not so easily manufactured, and here companies reported a 4.3 percent revenue growth rate. That means actual people or companies spending actual money on goods and services. And some of the strongest sectors were technology and specialty retail, both of which have a strong consumer component. Some notable large retailers, such as Walmart and Macy’s, noted weakness, and July retail sales as reported by the Commerce Department were flat, but the first seven months of 2014 are still registering 3.7 percent sales growth compared with 2013. And juxtaposed to Walmart were chains such as J.C. Penney that saw 6 percent growth in sales and more than 5 percent in revenue.
So what gives? How can this disconnect between popular sentiment and much of the available data be explained?
In part, the problem lies with economic data that essentially aggregates and averages a wide variety of experiences into a few synthetic numbers. Income growth, unemployment rates, spending, GDP growth—all of these simply add up everything happening within a country’s borders. We arrive at one composite number, with little regard for the wide and often extreme variations that these numbers mask.
There is also the complicated issue of how much income growth goes to a very small percentage of the population. Unquestionably, wages for the many have been stagnant for years, but wage stagnation in the mid-1990s and mid-2000s did not produce such widespread despair. You could argue that the effects of the ’90s stock market bubble and the 2000s housing bubble allowed people to live enough beyond their means that such stagnation was less apparent. Yet the current data on income growth over the past year relative to inflation appears to be widespread—to 46 states—and not attributable just to the sliver of the 1 percent.
Nor can the revenue growth across nearly every sector for hundreds of major companies be attributed only to thousands of millionaires and a handful of billionaires doing quite well. National chains as varied as Starbucks, Michael Kors, and Limited Brands, along with consumer and technology companies such as Apple, Amazon, Netflix, and a bevy of others, are seeing high-single-digit and often double-digit revenue growth. Such growth is widespread, and indicates at the very least that a substantial majority has income to spend beyond what is needed for basic needs.
Most of these companies are mass-market enterprises serving tens of millions of people, and those people are spending. And they are not spending on borrowed money, judging from revolving debt statistics (i.e., credit cards and the like). In fact, overall revolving debt is about 15 percent less than it was in 2008, according to the Federal Reserve. Yes, some of the growth of these companies is international as well, which means that the story of healthy growth is not just an American one.
There is no easy explanation here. For now, there is a genuine paradox between multiple inputs showing clear and widespread improvement in economic life—including modest income growth—and clear and widespread conviction that there is not much improvement.
But one final piece of information may provide a clue to why. Last year, the stock market, using the S&P 500 as a proxy, rose by more than 30 percent, but only 7 percent of investors realized it. In fact, 30 percent of those surveyed believed that the markets were either flat or went down. And these are investors, people who are putting their money in the markets and have money to invest—already a rather privileged slice of the population. Yet that cohort was widely off the mark about how stocks have performed.
From privileged investors to the wider middle class, there is a gap between perceptions and how the economy is performing. We have been living through a relentlessly negative period in which political crises and negative economic news are trumpeted daily, and in which warnings of a new crash, another collapse, and long-term economic stagnation—or worse—proliferate. It is difficult to integrate a gradually improving set of numbers when the prevailing sentiment is so grim.
That grimness may be understandable. The U.S. labor force has morphed from the manufacturing jobs familiar in the 20th century to a shifting mélange of self-employment and service-sector jobs with fewer benefits. The political class seems unable to craft coherent and helpful policies. And whatever veneer of certainty about the future that existed in the last decades of the 20th century was shattered by a wave of crises beginning with 9/11 and extending through much of this new millennium.
Nonetheless, the lattice of data—from unemployment to growth to income to the revenue growth of companies—is not in sync with grim sentiment. The fact that many millions are dislocated or faring badly cannot be ignored, but nor should other facts that present a different, much more positive picture. Those facts matter, and they need to shape our sense of the economy. We are collectively in thrall to our legitimate sense that much is uncertain and not working well, but that must be leavened by considerable evidence that for now, things just aren’t as bad as they seem.