As 2012 sputters to a close, it wraps up with a yawning gap between widespread economic pessimism and the actual state of economic affairs.
Though consumer sentiment rebounded in the fall, it fell in December, amid relentless coverage of the impending fiscal cliff. Holiday spending was muted. Businesses, meanwhile, cite the unresolved negotiations in Washington as evidence of continued uncertainty and many have put new spending, hiring or investment on hold. The media counts the days (and on some cable news channels, the minutes and the seconds) till we descend the fiscal cliff – adding to the general agitation.
Yet, every indicator of American economic activity has been strengthening. Stocks are up between 8 percent and 14 percent in 2012, depending on the index. Gross domestic product is increasing more than 2 percent a year; unemployment has fallen below 8 percent; wages are steady even as inflation is close to non-existent. Energy prices have declined, and home prices have increased. Debt burdens for American households are now at the lowest level in 29 years, giving the vast majority of consumers more flexibility in their spending
None of this, however, is evident if you listen to rhetoric in Washington, commentary on Wall Street and buzz in the news. Prognostications instead have us going off the fiscal cliff (completely or at best partly) and then, according to the Congressional Budget Office, descending into recession, higher unemployment and assorted other problems.
Something has to give. Either the powerful trends of forward movement will be dashed to bits at the bottom of the fiscal cliff or the consequences of that plunge will be far less dramatic than feared. You can make a case for either – but most are making the case for the negative.