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's July 7-9 poll*, and another 13% specifically mentioned the unemployment situation. A separate question found that 58% of Americans feel that the president is not paying enough attention to the economy. Clearly in the eyes of Americans, as the economy emerges tentatively from recession it cannot receive too much attention from Washington.
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 500 earnings will be 8.1% higher than the year before and 66% 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% in March to 6.4% in June. Not only do 13% of Americans feel that unemployment is the most important problem facing the country, but 44% of Americans also believe that unemployment will go up (either "a 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'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% in April 2003, 60% of Americans reported knowing someone out of work. That was up from 51% in February 2002, when the unemployment rate was 5.6%, and from 43% in August 2001, when unemployment was just 4.9%.
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% of those who know someone out of work have a positive view of the economy, while 59% have a negative view. By contrast, the negative tilt is much less pronounced among those who do not know someone out of work: 29% of this group is positive, 39% 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%) 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% of those who say now is a bad time to find a quality job have a positive view of the economy; 60% of this group has a negative view.
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% of Americans overall believe that unemployment will go up "a lot" in the next six months, the percentage is 27% 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.
*Results are based on telephone interviews with 1,006 national adults, aged 18 and older, conducted July 7-9, 2003. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3 percentage points.