Opinion

The Edgy Optimist

Whose happiness drives the economy?

Zachary Karabell
Nov 29, 2012 13:31 UTC

A strange inversion has happened in the past few months: Consumers have gone from being deeply pessimistic about the future to slightly optimistic at the same time that companies have moved from being slightly positive to increasingly negative. That discrepancy is intriguing, and raises the question: Which view will determine the course of the near future? Will the buoyed spirits of people carry the day, or will corporate glumness pull us down?

The evidence that consumers are perking up comes from the multiple consumer sentiment surveys done each month, especially those conducted by the University of Michigan and the Conference Board. The most recent Conference Board survey released earlier this week showed consumer confidence at its highest level since February 2008, while the University of Michigan index of consumer sentiment had surged nearly 30 percent from a year earlier as of late November. The Michigan survey revealed more optimism about the employment situation than at any point since 1984.

Some of the improvement in sentiment indicated by these surveys is clearly tied to a better housing market, with prices increasing across the country. Some of it can probably be explained by just how pessimistic people have been over the past few years. These reports cannot compare how people felt in 1984 with how they feel now. The scores are based on purely subjective questions about how people feel (“Do you think that a year from now you will be better off financially, worse off, or just about the same?”). The change in scores is reflected month by month, but the surveys say nothing about the quality of those feelings over time.

So while the surveys show the most positive results in years, it’s possible that they are only positive relative to how negative people were in 2009, 2010 and 2011, and that compared to the 1980s and 1990s, people aren’t actually feeling so confident. The same goes for income: More people than at any point since early 2008 say their finances are improving; that raises the index. But given that most incomes have been stagnant for the past decade or more, improvement does not necessarily translate into objectively good.

Still, the shift is noticeable, and even more so when juxtaposed with what business leaders say and the steps they are taking. Executives seem fixated on the logjam in Washington and the uncertainty surrounding the “fiscal cliff” and tax rates next year. A Wall Street Journal study of 40 major companies found that more than half planned drastic cuts to their investment and spending through the end of this year and into next year in response to the potential for higher tax rates. Business leaders have been aggressively lobbying in Washington these past weeks to make clear to the White House and Congress that if there is no resolution of the “fiscal cliff” the consequences for business will be dire. That is leavened somewhat by other reports, such as yesterday’s durable goods orders, that indicate more modest contraction. Still, the prevailing sentiment is, as Dupont’s chief executive officer, Ellen Kullman, said, “We’re pulling back … and taking a wait-and-see attitude.” Others have been stark. Said Brian Moynihan of Bank of America: “Uncertainty continues to hold back the recovery. Simply put, our clients tell us they will not be aggressive in times of uncertainty.”

Yes, I am thankful this Thanksgiving

Zachary Karabell
Nov 22, 2012 01:22 UTC

It’s admittedly trite to use the occasion of Thanksgiving to look on the bright side, but given how rarely we cast an optimistic outlook these days, it’s as good a reason as any. With Chapter LXXII of the Middle East conflict playing out in Gaza and the daily soap opera of Washington politics oscillating between sex scandals and fiscal fearmongering, we are once again subsuming the bigger picture to the smaller one and privileging fear.

So, in no particular order, here are six economic points to be thankful for, or at least mindful of, this Thanksgiving:

U.S. housing is on the mend. It took four years, but the long swoon in housing has come to an end. Every housing market metric – new sales, new permits, existing home sales, housing starts and prices – has shown steady and consistent improvement over the past few months. Perhaps the most favorable trend:  The inventories of new and existing homes have fallen sharply and is about half what it was at the housing bubble’s peak in 2007. Of course, there are regional variations, and average prices are far lower than at the peak of the bubble. That is likely to be the case for many years. But a fluid U.S. economy requires a functional housing market that allows people to take new jobs or retire. Housing should not be a pillar of economic growth, as it was in the mid-2000s, but it cannot be an obstacle to growth. The housing market has been a barrier. It no longer is.

When did America get so pessimistic?

Zachary Karabell
Nov 15, 2012 15:46 UTC

Barely had the counting ceased in last week’s presidential election when the news took a somber turn. Two of the next day’s headlines read “Back to Work, Looming Fiscal Crisis Greets Obama” and my favorite, “America has Sown the Seeds of Its Own Demise.” Politicians either celebrated or decried the results, but regardless of party affiliation most warned of formidable challenges and a perilous future.

How did it come to pass that even the resolution of a contested election brings almost zero relief from the relentless focus on problems and threats? How did a country that for much of its history exhibited a (sometimes naive) willingness to ignore obstacles and plunge forward become a society that struggles to turn its gaze away from the dangers that loom just ahead? In short, how did the United States become so pessimistic?

Some of it surely has to do with how the past decade has unfolded.  Without question, this has been a challenging time for America and much of the Western world. We can all recite the crises, disasters and failures: Y2K, the bursting of the Nasdaq stock market bubble in 2001, 9/11, Iraq, Afghanistan, Enron, WorldCom, the bursting of the housing bubble, the Wall Street implosion of 2008, the euro zone’s troubles, chronically high unemployment, anemic growth, the continued emergence of China as a global economic force. I could go on.

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