Many Americans See Economy Improving: But Not for Them

Convergence in business research has meant that metrics once developed by specifically focused interests - some might have called them obsessed - is now widely acknowledged and shared. Consumer sentiment is one of those measurements that gained acceptance relatively quickly. In an economy which is driven by consumers - between 40% and 70%, depending on the study you prefer - that just makes sense. Investors and economists watch it because it is a useful leading indicator. The most recent results suggest that belief in American 'exceptionalism' aside, many no longer share the once nearly universal acceptance of the notion that one's children would live more affluent lives than their parents is being challenged. The implication for business is that sales and profits may be constrained as long as some key commodity prices continue to rise while job growth languishes.

Floyd Norris explains in his Off The Charts column in the New York Times:


"For the first time in six years, at least half of Americans questioned for the Thomson Reuters/University of Michigan consumer sentiment index said they believed that business conditions had improved over the previous year, according to the preliminary results from the February survey.

Similarly, the report found that more Americans thought the unemployment rate would fall than expected it to rise, with 29 percent forecasting a decline and 21 percent expecting an increase. Given how high the jobless rate was — 9.0 percent in January, the last number released before the survey — that may be something less than a ringing vote of confidence in the economic recovery.

But a plurality of Americans had not indicated a decline was expected since July 2004, when the rate was 5.5 percent. In October 2009, when the rate peaked at 10.1 percent, 36 percent of respondents expected the rate to continue rising, while just 16 percent expected a decline. Others either expected no change or had no opinion.

A majority of Americans consistently thought business conditions were getting better during the boom of the 1990s, but that was only intermittently true during the long expansion after the 2001 recession.

Similarly, during the recovery of the last decade, there was never a time when a majority believed their families were better off financially than they had been a year earlier, although it was normal for more to feel that way than to feel their condition had worsened.

Before the recent downturn, only once — in early 1980, during a sharp recession accompanied by high inflation — has a majority said their families were worse off financially than they had been a year earlier. But a majority felt that way for all but one of 18 consecutive months beginning in mid-2008, as the financial crisis took hold.

Even now, 37 percent say they are worse off, compared with just 28 percent who think they are doing better.

In the past, there were only a few times when an absolute majority of people thought they would not be able to keep up with inflation over the next year, and before the financial crisis, all of those times came when inflation was high. But now, 53 percent feel that way, while a record-low 8 percent think their income will rise faster than prices.

The reason for that seems to be largely based on worries about income rather than prices. Although expected inflation rates have been rising, a majority still expect prices to rise by 4 percent or less.

But many of those surveyed said they thought they could not keep up, even if there were no inflation. Nearly a quarter of the respondents expect their family income to decline over the next year. That is down a little from the height of the crisis, but is far above any level seen before 2008. Only 10 percent of Americans think their income will rise more than 5 percent. That is the lowest figure since the survey began asking that question in 1978.