A crazy thing happened while you were recovering from your Christmas food coma, your friends were out buying booze for New Year’s Eve and nonprofits were pleading for end-of-the-year donations: Americans finally started saying nice things about their economy.
That’s according to Gallup’s daily economic confidence index, which for the first time since the recession showed consumer optimism edging out consumer pessimism.
Gallup’s index is based on responses to two poll questions: one on Americans’ views of current economic conditions and another on whether they think the economy is getting better or worse. Gallup adds the net percentage of Americans rating today’s economic conditions positively (that is, the share saying things are “excellent” or “good,” minus the share saying they’re “poor”) to the net percentage saying the economy is improving (“getting better” minus “getting worse”); the result is then divided by two, to create an index value that falls somewhere between plus-100 and minus-100. A number less than zero suggests that more Americans have a negative than positive view of the economy; greater than zero suggests the forces of optimism are winning out instead.
In the week ending Dec. 28, the sun broke through the clouds. Gallup’s economic confidence index averaged a whopping plus-2.
Yes, plus-2. While not exactly gangbusters, the score represents the first time since early 2008 — when Gallup began compiling these data, shortly after the recession began — that we got a reading above zero. Plus, in the days since (at least as of Jan. 3), the index has stayed in the black.
I should note that there are other metrics for consumer optimism, but they’ve also been relatively buoyant. The Conference Board’s consumer confidence index has been generally climbing in recent months, and in December the University of Michigan consumer sentiment index was at its highest level since the last cyclical peak in January 2007.
There are a few likely reasons why consumers are more upbeat.
The steep decline in gas prices — down about 30 percent in the last four months — has made people feel a little richer, with more pocket money available for Christmas presents and other expenses. Unemployment has skidded downward, too, to its lowest rate since before President Obama took office. Gross domestic product growth soared in the third quarter to its fastest pace since 2003. Even wages have ticked up a teeny bit recently, and Conference Board survey data suggest that consumers expect them to continue rising. On these and other metrics, economic conditions look relatively good, if belatedly so.
This is especially true when you compare economic conditions in the United States with those in some of our peer countries. The average unemployment rate across the euro zone is almost twice the level in the United States. And while output growth here has been tardy and until very recently pretty disappointing, at least our economy has not been shrinking most quarters over the past three years, as has been the case in, say, Italy. As I’ve written before, America’s and Europe’s divergent economic fates are partly due to deliberate policy choices (such as those made by the very activist Federal Reserve vs. the foot-dragging European Central Bank) and partly due to dumb luck (like having a global investor base that gobbles up your debt in times of crisis).
Europe’s troubles, of course, remain a latent risk for the United States, particularly in light of ongoing drama and posturing related to the upcoming Greek elections and whether Greece will get to restructure its debt again as a result. And emerging markets, such as Venezuela and Russia, show rumblings of major economic troubles. (One leading indicator of this: Carmen Reinhart, a Harvard professor and leading expert on international financial crises, told me she’s been more in demand than usual and has been asked to fly out to emerging markets around the world. “That’s usually a bad sign,” she says.)
Certainly these factors provide good reason to temper Americans’ already quite temperate optimism; that is, we shouldn’t expect Gallup’s modest economic confidence reading to reach legal drinking age anytime soon. And we are, of course, still trying to fill the vast holes created (or deepened) by the “Great Recession,” particularly where output, wage growth and employment are concerned. Perhaps the years of devastating losses have even conditioned us to get excited by anything approaching mediocrity. Been down so long it’s starting to look like up to us.