This is one of those things that at first gets ascribed to sampling error or a statistical fluke or the weather or something, but then it wobbles lower month after month, in crass defiance of all rosy scenarios that had been so carefully laid out, and confirmations are hailing down from other directions, and suddenly it’s serious.
In early January, the economic confidence of Americans had reached the highest level in the Economic Confidence Index since Gallup started tracking the data in 2008. At +5 in January, the index wasn’t particularly high. But most Americans don’t live in the glorious Fed-goosed Wall-Street economy. They live in the real economy. And there, things have been tough.
Crummy as it was, January was practically glorious compared to the low of the Financial Crisis, when the Economic Confidence Index hit -65. That must have been at about the time when Treasury Secretary Hank Paulson told Congress that the world would end unless he got unlimited means and power to bail out certain big financial outfits, such as his former employer Goldman Sachs.
But in February, economic confidence began to zigzag lower. The index for the week ending July 26, released today, dropped another 2 points from last week, to -14, the worst level since September. This is what “gradually” (as Gallup called it) swooning economic confidence looks like:
The index is a composite of two sub-indices: one tracks how Americans perceive current economic conditions; the other tracks how Americans see future economic conditions.
Last week, I fretted over the deterioration of Americans’ economic outlook since January, which had plunged 25 points from +7 in January to -18 now, and I wondered what dark clouds Americans were seeing in the future that would impact their own lives, clouds that the ebullient stock market has remained blind to.
Today, the future conditions index remained at this dreary level, with 39% of Americans saying the economy is “getting better,” while 57% – that’s well over half – saying it is “getting worse.”
But in terms of current conditions, as of last week, Americans had not yet thrown in the towel: that index had been down “only” 8 points from +3 in January to -5 last week. But today, Americans’ view on current conditions caved, and the index plunged 4 points in one fell swoop to -9, with only 23% of Americans saying the economy is “excellent” or “good” and 32% saying it is “poor.”
The explanations get flimsier by the week. Gallup:
Though Americans’ confidence in the national economy has skewed negative for six months now, the recent drop of the current conditions component comes on the heels of a new path for solving the Greek debt crisis and amid a tumultuous period for Chinese stocks. The instability abroad could be fueling Americans’ doubts about the health of the U.S. economy, not to mention that the Dow closed lower several days in a row last week.
Alas, most Americans don’t pay attention to stock markets, and particularly not the markets in China. Besides, US stock markets remain near all-time highs, and there hasn’t been a real sell-off of any kind in a long time. Tiny Greece has never been a huge concern for Americans. Instead, Americans are worried about the economy as they see it around them. They don’t need Greece and China to start fretting.
So today, there was a sudden confirmation that the rosy scenario isn’t working out for many Americans. The Conference Board’s Consumer Confidence Index plunged – “unexpectedly,” as it was ironically called in the media – a steep 9 points to a 10-month low of 90.8, after having already revisited the over-100 mark earlier this year.
Even the elusive level of 100 isn’t all that great: the index peaked at over 180 before the dotcom crash and at 140 before the Financial Crisis.
While the present situation index, which measures current conditions, fell 2.9 points to 107.4, the future expectations index plummeted 12.9 points to 79.9 – suddenly, and beyond doubt “unexpectedly,” hitting the lowest level in a year and a half!
The report blamed the sharp deterioration on a “less optimistic outlook for the labor market, and perhaps the uncertainty and volatility in financial markets prompted by the situation in Greece and China….”
But forget Greece and China: In June, a measly 17.9% expected business conditions to improve over the next six months. In July, an even measlier 14.7% did so.
The labor market worried them too: the percentage of folks expecting more jobs in the near future dropped by 4 points to 13.1%, while those expecting fewer jobs rose nearly 5 points to 20%. This is going the wrong way.
And only 17% of the consumers expected their incomes to grow, while 11.1% expected their incomes to decline. Turns out, stagnant or declining incomes have been the mantra since the Financial Crisis, and a big part of the problem for people having to duke it out in the real economy.
For these folks, it boils down to jobs and income; and the expenses of a roof over their heads, education for their kids, healthcare, and so on. This is where the reality on the ground deviates from the rosy scenario that Fed & Co. have so carefully constructed for Wall Street.
But even in the Fed-nurtured financial markets, turmoil is beginning to spread, as the acrid smell of burned fingers wafts through the bond market. Read… How Much Worse Can the Junk-Bond Sell-Off Get?
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I was an executive with a big casino company for many years.
One of the things that most casino executives understand is that eventually even the densest and stupidest gamblers in the casino will wake up one day, realize that the odds are stacked against them, and that they will never win in the long run. These folks eventually give up on gambling, and new suckers must be found to take their places.
My view is that a similar realization is occurring among everyday Americans. Many ordinary working-class people are finally beginning to see through all the economic recovery b.s. spouted by the politicians and the media. Many are finally having that AHA! moment.
After nearly 7 long years of lousy economic performance, they are finally figuring out that they’ve been had. They’re figuring out that this lousy economy is probably as good as it’s going to get. The ‘recovery’ is a statistical mirage. For most, the economy has not really gotten much better, for millions it’s gotten worse, and with more ‘free trade’ agreements on the horizon it’s going to get materially worse for millions more who will lose their jobs in the name of ‘free trade.’
I think your observations and conclusions are spot on. I too have been monitoring the attitudes of friends, family and even strangers relative to the economy. I always call 2007/2008 the start of the hidden Depression, versus the Great Recession. This gets interesting reactions from strangers but then they realize what I am saying and pretty much agree; an ongoing, serious structural economic depression.
So yes, as time marches on, as inflation erodes savings and buying power, people are pulling back and will continue to do so.
A couple of weeks ago, a blogger on another site posted a wonderful in-depth analysis of the flaws in the official Bureau of Labor Statistics (BLS) inflation statistics. Suffice it to say that if you pay rent, health insurance, medical bills, or tuition, your inflation rate is materially higher than the phony inflation numbers concocted by BLS.
And we haven’t yet added in utility bills, cable bills, or grocery bills…
They should shorten the name to ‘Bureau of Statistics’ ( “labor” doesn’t have much to do with these numbers anyway, and the shorter acronym works better)….Your analysis of the current zeitgeist does ring true — you may have had a professional advantage in looking for the bigger picture: They don’t call our new financial system ‘Casino Capitalism” for nothing (when contemporary Italians say “casino!”, they mean “What a mess!” The original meaning of the word is ‘bordello’ — a pretty good description of many in our current pay-to-play Congress, the “Parliament of Whores in charge of overseeing the American economy…)
Not to worry. Sooner but not later our government will come up with a new formula to correct obvious flaw in the Economic Confidence Index & the Consumer Confidence Index, as they don’t correspond with the government propaganda. The MSM will gleefully assist in spewing their message. This changing the formula tactic has worked so well with the low Unemployment Rate, Inflation Rate, high GDP well you get the drift. One of the comments I remember most from college days, was Dr. Worleys Statistics class where he stated “You can prove anything with statistics.” I’ve often wondered if he became a Political Consultant after retirement.
Not only have I not made any money in the markets for the last 7 years, I have had $200K tied up in shorts. I am to blame, not Bernanke, Dimon or anyone else. These central banks have made a lot of people very rich. Everyone coming to this site could have made a great deal of money. My friend went with the bulls. This year she bought a new car, is having an 8,000 sq ft. home build and has booked a round the world cruise. All paid for with cash she had made because of Bernanke’s policies. Now, it doesn’t matter when and how many balloons pop. There is silver, gold and cash in places she can get her hands on. One can offer a million good excuses why they didn’t get a new car, new home and a cruise around the world, and they can say silly things about people like my friend, but it all boils down to the fact they missed the boat. Envy comes from people’s ignorance of or lack of belief in something that worked. Bottom line: When these balloons do finally pop; instead of a new car, new home and a world cruise, all of those who missed the boat will get to say, “I told you so.”
Really, envy is not always at play in these matters. Depending on who you are and where your priorities lie, it may also boil down to how much actual quality that new car, new house, world cruise or making a lot of money on the stock market add to your life. Me, I like to make (less) money in a (more) productive way, because it gives me a sense of purpose, self reliance and achievement. I know this might sound corny to anyone chasing that famed American dream, but I don’t see a lot of added value in the pursuit of “owning stuff” as the ultimate goal. And as far as stock markets are concerned, I’ve always been told that investing in them was not meant to be a get-rich-quick-scheme on a personal level, but first and foremost a way to invest in productive business ánd make some money in the process.
But then again, what do I know, I’m European.
My point was, no matter how thin you slice it, there are always two sides. I own an airplane because I do not like going through security and flying on someone else’s schedule. I own an RV and boat for the same reasons. I also own these things because they gives me a sense of purpose, self reliance and achievement. I don’t fault those who choose to living in a two bedroom, one bath homes. Use city transit and fly coach in order to spend their money in other ways. Why would you associate the markets with a get-rich-quick-scheme? We invest our money and hope to get rich, but it sure isn’t a scheme on my side of the fence.
As Mr Donne said, many years ago: “No man is an island…”
The economic elites’ lifestyles are based on functioning social and economic systems. The present crisis cannot be perfectly compared with the “Robber Baron” age of a century and more ago. Technical culture is an order of magnitude more complex than then. There are many more moving parts to be maintained and supported. Wealthy people of a century ago succumbed to the same diseases that carried off large swaths of the ‘lower orders.’ The veneer of civilization we all take for granted today is indeed thin.
Right now, my wife and I see aimless young men wandering around our formerly solid middle class neigbhourhood looking for any type of work. When they cannot find that work, they steal. Aside from the fear of losing our possessions, can we really blame them?
The other flaw in your argument is the heavy influence of chance in human affairs. The elites may be ‘smarter than the average bear,’ but not immune to rising sea levels, climate induced crop failures, toxic discharges from short sighted industrial planning, etc. etc.
Finally, do remember that those despised ‘lower orders’ can show up at your door, or gated enclaves’ fence, or deep woods bunker and do some evil things, just for the H— of it. Kill as many of them as you will, they will have passed the point of no return, and not give a D— anymore. Then Mr Hobbes will yet again have been justified; everyones’ lives will be “..solitary, poor, nasty, brutish and short.”
Dear Mr. Miller,
You still have confidence in the system because you still have a stake. As I see it, you are one airplane, one RV, one boat, and one brokerage account way from being where I am. The difference is that I know from experience how short the road from those things to nothing can be. I did all the right things, and still, here I am.
The system has become so unstable, IMO, that even billionaires are running for public office, to protect their stakes. I hope things break in your favor, luck is the only thing you can count on these days.
“39% of Americans saying the economy is “getting better”
Who are these 39% of Americans and where do they live?
I don’t know how they get these numbers (ask random people on the street?) but if I was asked, I’d probably just say, “Well, the stock market has been going up so things must be getting better. Personally, I’m doing worse but it’s probably because of my bad luck or lack of know-how to make it big in this clearly bullish economy. Apple is making tons of money which means people are able to afford their expensive smart phones so I think I’m just in the wrong industry. I should’ve went into STEM, everyone in those fields are living the good life.”
“I should’ve gone into STEM, everyone in those fields are living the good life.”
Some of the younger ones in software seem to be “living the good life” but many technical workers are struggling. Jobs are no longer plentiful in many technical fields. There are now 2 STEM grads for every opening. Older STEM workers were displaced and discarded even when times were good. During the past 3 jobs recessions, large corporations laid of millions of tech workers. For the older workers, these layoffs meant their careers were over. They turned up wearing orange aprons in some big box hardware store.
Even the STEM workers who managed to remain employed have seen flat wages. Most have to work time and a half without getting OT pay. The joke where I worked was we had flex time: you can stay as late as you like, so long as you’re in by 8 in the morning.
All that glitters is not gold.
Great comments! I just want to add that we need to add ‘entropy’ to the list. This globalized economy has been like a pop fly. The ball reached its peak trajectory some time ago and is now wobbling on the breeze. How much Chinese junk do you need to buy? Or, new boat, bigger house, whatever? We are aging and slowing. How it unfolds is the question? Will it be violent? Mass dislocations? Migrations? How will Climate Change stir the mix? Does anyone think the world population and resulting economies can grow forever? The last time I looked at a globe it was bounded by space and seemed somewhat, finite. Plus, all those sweet spots settled forever are threatened by sea level rise and unpredictable climate. I am sure our sw American posters understand some of these changes. Will it take Vegas running out of tap water to underline it?
A new meme cropping up these days is ‘collapse ahead of the times’, deliberately. What this means will be defined by individuals and their unique stories. Nevertheless, life is change and this sucker is changing pretty fast as far as I can see. The big house and fancy car are not assets to be proud of, imho.
The optimism index – or lack of it – has nothing to do with anything going on in China or Greece….or the stock market which the common man figured out long ago is a manipulated casino that benefits only insiders.
Overlay the (lack of) optimism chart with the price of gasoline and you may just find out that sometimes, just sometimes, correlation IS causality.
They call it a confidence indicator but it is really a disposable income indicator. The only way to get a raise in the private sector is to change jobs, if you can. Otherwise, no one is getting a raise.
Obamacare is draining the working class. I hear that even the subsidies will be clawed back through liens on property, like medicare does. They won’t bankrupt you, they will just wait for you to die, and take everything. You can see the incentives built into that system.
Prices on necessities are high and continue to drain more and more income. Even though oil is down 50% no ones electric bill has declined. We live in a predatory economy, a predatory state. Before the financial crisis only the poor saw this aspect of America, now we all see it, and live it too.
The bailouts went to the wrong end of the economy. The lack of confidence is in the entire system. Washington can’t even protect the borders. It doesn’t get more basic than that.
The press media has become DNC propaganda machine hoping that people will continue to drink the Kool Aid “news” and believe it like hoax and change mantra.
That said sounds like folks all over US are waking up and smelling the coffee and stop believing in unicorn farts.
I’d like to add a few things.
First thing, there are those who read these blogs and websites and profited from the situation. It’s one thing to swallow the party line bait, hook, line and sinker and quite another to understand and accept you are just misusing a system for personal profit. It ain’t fair, sure, but when BB- rated corporate bonds yield 1.24% and, when real inflation is factored in, you are effectively paying to hold sovereign bonds, it becomes a matter of survival. Trust me on this: I’d really like to get back to the old days of 10 year US treasuries yielding over 7%.
Second thing, as long as the pricing disconnect continues, retail sales will continue to be crummy at best and downright frightening at worst. We live in a world with massive overcapacity in all sectors, from oil tankers to toys, yet retail prices refuse to budge or continue to increase. Many have noticed fuel and utilities are more expensive now with oil at around $55/barrel and natural gas often below production cost than during the 2008 HC Bubble. Shopping for groceries means a trip to the Wailing Wall these days despite corn, palm oil, soybean and other agri commodities being slaughtered on daily basis. Quality fade and the grocery shrinking ray are depressingly common experiences.
Inflation is simply passed on to consumers who also get the stupid treatment by being told prices are stable if not declining and expected to believe the data and go out and shop for more.
Third thing: forget being robbed of your savings and having your wage undercut by creeping debasement. The greatest crime governments and central banks committed against ordinary people is robbing them of hope.
The Economic Outlook in the Gallup Index says a lot about how much hope is left in the streets. Bleak birth rates all over Europe are even more worrisome. People in highly developed economies don’t stop having children just because they have access to condoms. They do so because they fear they won’t be able to adequately support them. They do so because they cannot afford one breadwinner to go on maternity leave. They do so because they cannot afford to leave their parents’ houses.
Think voting will make a difference? Just ask the Greeks.
I disagree with Donne, EVERY MAN is an island, but we can build bridges. This bridge is called civilization. In a merit based civilization one is rewarded for production of values. Money is a standardized value with which to trade. As the Framers knew, because of the hyperinflation of the Continental, and enshrined in the Constituton, this money should be silver and gold. I despise the words ‘robber barons’ because the Captains of Industry were by and large neither thieves nor royalty both of which were despised in the early Republic, which is why their enemies hung that obscene anti-concept on them. Americans have never been afraid of new tech. Only by looking through the blurry history revisionist lens can anyone believe today is the more challenging. The Elites are not smarter than the average bear, they are dumb as posts. They hate change and always fight against the next innovation dreamed up in some visionary’s garage. It’s always Old Money vs. New money. Climate change is a hoax and the kind of pollution you describe hasn’t been around since the Sixties. Some diseases have been eliminated, like small pox and polio, and your poor people benefitted from that too. Can we really blame them them for stealing? Probably not, since their “betters” are only better thieves. I agree with you that the veneer of civilization is thin. But don’t blame Capitalism, blame the Government Class who agree with Mao Tse Tung, that power flows from the barrel of a gun. Regards, Julian
Still not sure why Confidence numbers matter. Everyone here knows: confidence up, Amerikans will buy, confidence down, Amerikans will still buy. Second quarter GDP 2.3% due to exports + consumer spending. No doubt there will be revision, but consumer spending people.