racetracks

Public opinion sour on economy, despite positive signs
Despite signals from the equity markets
that the worst might be behind us, concerns
about the economy in general and a
troubling unemployment situation weigh
heavily on the minds of Americans.
Twenty-seven percent of U.S. adults
mentioned the economy in general as the
country’s most important problem in
Gallup Tuesday Briefing’s July 7-9 poll,
and another 13 percent specifically mentioned
the unemployment situation.
A separate question found that 58
percent of Americans feel that the
president is not paying enough attention
to the economy.
Clearly in the eyes of Americans, as the
10 • NORTHEAST PENNSYLVANIA BUSINESS JOURNAL • SEPTEMBER 2003
economy emerges tentatively from recession
it cannot receive too much attention
from Washington.
Encouraging Signs
The ongoing skittishness seems strange
in some respects: the fog of war has lifted,
after 13 rate cuts the Fed still maintains
an accommodative stance, and new
home sales are booming.
Furthermore, there is good news from
corporate America: reported corporate
earnings have exceeded expectations and
productivity growth is strong.
The latest Thomson First Call consensus
estimates project that second quarter S&P
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500 earnings will be 8.1 percent higher
than the year before and 66 percent of
S&P 500 companies that have reported
earnings so far have beaten estimates.
The Unemployment Effect
So why isn’t the public feeling more
jubilant about the recovery?
The most obvious answer continues to
be the national unemployment rate,
which climbed from 5.8 percent in
March to 6.4 percent in June.
Not only do 13 percent of Americans
feel that unemployment is the most
important problem facing the country,
but 44 percent of Americans also believe
that unemployment will go up (either “a
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©2003 The PNC Financial Services Group, Inc.
lot” or “a little”) in the next six months.
How does the unemployment rate
impact overall perceptions of the economy?
Even in periods of high unemployment,
the vast majority of workers keep
their jobs; thus the effect of high unemployment
on consumer confidence
comes from consumer skittishness about
their own job security, and/or consumer
sympathy pain for friends and family who
are out of work.
From data gathered for Gallup Tuesday
Briefing’s 2003 Personal Finance survey
in April, it appears that changes in the
unemployment rate filter through to the
public.There is high correlation between
the actual unemployment rate and the
percentage of Americans saying they
know someone who has recently been
laid off or fired.
When the unemployment rate hit 6.0
percent in April 2003, 60 percent of
Americans reported knowing someone
out of work.
That was up from 51 percent in
February 2002, when the unemployment
rate was 5.6 percent, and from 43 percent
in August 2001, when unemployment
was just 4.9 percent.
Similarly, public perceptions about
whether it is a good or bad time to find a
quality job are closely linked to the
unemployment rate.
There is also some correlation between
personal experiences and perceptions of
unemployment, and one’s rating of the
U.S. economy.
Knowing someone who is out of work
correlates strongly with a negative view
of the U.S. economy.
Only 13 percent of those who know
someone out of work have a positive
view of the economy, while 59 percent
have a negative view.
By contrast, the negative tilt is much
less pronounced among those who do
not know someone out of work: 29
percent of this group is positive, 39
percent is negative.
The correlation between unemployment
and the overall economy is somewhat
clearer when looking at respondents’
general perceptions of the job market.The
plurality (44 percent) of those
saying now is a good time to find a quality
job also have a generally positive view
of the economy. By contrast, only 11 percent
of those who say now is a bad time
to find a quality job have a positive view
of the economy; 60 percent of this group
has a negative view.
Bottom Line
It seems especially revealing that young
adults — who largely drove the Internet
boom of the 1990s — are now particularly
negative about employment prospects:
while 16 percent of Americans overall
believe that unemployment will go up “a
lot” in the next six months, the percentage
is 27 percent among 18- to 29-year-olds.
Economists might point out that seasonal
fluctuations in unemployment data are
making statistics difficult to interpret, but
judging by the resounding pessimism of
Americans — and young adults in particular
— there can be little doubt about the
huge psychological toll. News of improved
corporate earnings will ring hollow until
Americans start to see — and feel —
employment figures catching up.