No Jobs, No Confidence: Economic Optimism Declines as Employment Lags
Five years into the post-crisis recovery, Americans still harbor more pessimism than optimism about the state of the economy. According to Gallup’s U.S. Economic Confidence Index, 57 percent of Americans surveyed the week ended March 9 believe the economy is getting worse, up from 53 percent for the week ended February 23. Just 37 percent of Americans surveyed believe the economy is getting better, down from 42 percent. Reflecting the sour mood, the headline economic confidence index edged down from -17 to -20.
The economic confidence index has averaged a weekly negative score since Gallup began reporting readings in January 2008. Gallup’s headline Economic Confidence Index is a composite of Americans’ assessment of current conditions and future expectations; it has a theoretical minimum score of -100 and a theoretical maximum of +100. At negative levels, the index suggests that more Americans are pessimistic about present and future economic conditions than are optimistic.
Americans polled by Gallup aren’t the only ones who are pessimistic about the economy. The National Federation of Independent Business reported that its Small Business Optimism Index dropped 2.7 points from January to 91.4 in February, breaking a three-month streak of improvement. The NFIB Small Business index is set to a pre-recession average of 100.
Casting a shadow over the entire economy is the dubious health of the labor market. The U.S. Bureau of Labor Statistics reported that 175,000 jobs were added in February, up from the dismal growth rate of 84,000 in January but still below the 200,000 level that many economists believe is the minimum necessary to meaningfully improve the health of the labor market.
Unfortunately, because of pervasive long-term unemployment and underemployment, the headline unemployment rate has become next to useless as a proxy for the overall health of the labor market. At a glance, it may look like the full percentage point reduction in the rate over the past year is meaningful, but alternative measures of the labor market show that the post-crisis economy is fundamentally different (read: weaker).
For example, the civilian employment-to-population ratio, as measured by the BLS, clocked in at 58.8 percent in February. This ratio has been trapped below 59 percent since 2009 and compares unfavorably against pre-crisis levels closer to 62.5. Meanwhile, Gallup’s payroll-to-population rate was just 43.1 percent in February.
Moreover, while the total number of employed people in the U.S. is approaching its pre-crisis level, employment growth has generally failed to keep pace with population growth. The result has been a diminishing share of Americans who actually have work. This has contributed to the fundamental economic weakness that is perceived by Main Street and economists alike. U.S. economic output is about 10 percent below potential as calculated in 2007 before the crisis. Some economists — notably, former Treasury Secretary Lawrence Summers — believe that this under-performance is more than just a hangover the nation will eventually and naturally heal from.
Speaking at the International Monetary Fund’s Economic Forum in November and later expounding his point to the media, Summers has suggested that the U.S. could be experiencing secular stagnation.
“Secular stagnation refers to the idea that the normal, self-restorative properties of the economy might not be sufficient to allow sustained full employment along with financial stability without extraordinary expansionary policies,” Summers told the Washington Post in an interview in January.
Low consumer and economic confidence measurements support the idea that people believe there is little or no latent economic energy tucked away in the corners of the U.S. economy. Slack in the labor market, characterized by low labor force participation and a low hiring rate, also support this idea.
According to a separate Gallup survey, Americans named unemployment the top problem in the country, even overshadowing concerns about the country’s political system and fiscal situation.