Conventional wisdom holds that if people see the economy improving, they will be less likely to "throw the bums out" in the next year's elections. But the key is public perception of the economy, not month-to-month shifts in numbers. Although the National Bureau of Economic Research dates the last recession as beginning in December 2007 and ending in June 2009, according to polls taken as recently as this summer, a majority of Americans believe we are still in a recession. My hunch is that those analysts predicting that the new economic numbers will prompt a change in the political dynamics of 2014 are getting a bit ahead of their skis.
The first thing to keep in mind is that even as the reports last week showed lower unemployment, more jobs, and stronger economic growth, they also revealed that the nation's overall personal income dropped by $10.8 billion, or a tenth of 1 percent. Disposable personal income dropped by $23.6 billion, or two-tenths of a percent, in October; Mesirow Financial's chief economist, Diane Swonk, notes that gains in real disposable income came more from declining gasoline prices than higher wages.
In short, few economic benefits are trickling down to the poor or, for that matter, to the working and middle classes. Indeed, economists say the GDP growth came from a buildup of business inventory, which usually results in lower growth in subsequent periods, as owners draw down those inventories before manufacturing orders head back up. As the Dec. 10 Blue Chip Econometric Detail report, which accompanies the monthly Blue Chip Economic Indicators survey of top economists, put it, "The large upward revision to third-quarter GDP was due entirely to a $30 billion upward revision to inventory investment. The consensus anticipates GDP growth will slow sharply in the fourth quarter to 1.6 percent before rising to 2.5 percent in the first quarter of next year. GDP growth is expected to pick up gradually over the remainder of the forecast, reaching a 2.9 percent annual rate in the second half of 2014."At the end of December, Gallup reported:
The Gallup Economic Confidence Index averaged -17 last week, significantly improved from the -39 found in mid-October during the federal government shutdown. But the index remains stuck in negative territory at the end of 2013 and is considerably below the peak of -3 measured in early June.And Drew DeSilver writes at Pew:
Nearly 10.3 million Americans were unemployed in November, and almost 4 million of them, or 38.8% of all unemployed, have been out of work for 27 weeks or more. (December unemployment figures are due out Friday morning.)
The number of Americans who have remained unemployed for more than 26 weeks soared during and after the Great Recession, peaking at 6.7 million people — 48.1% of total unemployed – in April 2010. (All figures used here are unadjusted for seasonal variations.) While long-term unemployment has fallen slowly since then, it remains well above pre-recession norms, both in absolute and percentage terms: The averages in 2008 were 1.76 million and 19.7%, respectively.
Number of people unemployed 27 weeks or more (in thousands) Source: Bureau of Labor Statistics