On Tuesday those of us who have not already availed ourselves of postal ballots or early voting will troop to the polls to elect all 435 members of the House of Representatives, 36 of the 100 senators, 36 governors, and a host of politicians vying for local office. These old-fashioned voters will cast their votes when consumer confidence in the economy is at its highest level in about seven years. But a vast majority, although now more confident in the economy, also hold the seemingly contradictory view that our country is heading into its future on what pollsters call “the wrong track.”
As always, the economic signals are mixed. But taken as a whole they support the public’s optimism. The economy grew in the third quarter at an annual rate of 3.5 percent, the fourth of the most recent five quarters in which the growth rate has hit or exceeded 3.5 percent. True, it was defense spending and a drop in oil imports that accounted for a good part of the satisfactory growth rate. And true, too, spending on business equipment (+7.2 percent) and by consumers (+1.8 percent) grew more slowly than in the previous quarter, but such spending did grow. The monetary policy committee of the Federal Reserve Board contributed a bit of joy -- only a bit because the Fed’s forecasting record does not inspire confidence -- when it announced after last week’s meeting, “economic activity is expanding at a moderate pace … [and] labor market conditions improved somewhat further.” The Fed did end its stimulative money-printing (QE3) program as promised, but offset any effect that might have by stating that it will deploy other tools in its monetary policy kit to hold interest rates at close to zero.
Then there are those anecdotal statistics that are useful supplements to the more closely followed government reports:
· Apple’s iPhone 6 and 6Plus accounted for an estimated 10 percent of all recent U.S. economic growth, adding 0.3 percent to GDP. Innovation matters.
· Gasoline prices are plunging as new supply exceeds shrinking demand, putting cash into consumers’ pockets just as the holiday season starts. The rule-of-thumb is that every 1-cent-per gallon price fall adds $1 billion to consumer purchasing power. So the 30-cent drop in the past month gives consumers $30 billion more to lavish on toys, apparel, and, of course, iPhones. And economists reckon that every $1 decline in gasoline prices is associated with a 10 percent increase in sales of cars and trucks, especially of highly profitable, gas-guzzling SUVs and light trucks. Fracking matters.
· Hundreds of thousands of holiday jobs are on offer -- the seven largest retailers have 400,000 openings -- and are proving so difficult to fill that employers are “bombarding customers’ inboxes and Twitter feeds with help-wanted ads,” according to the Wall Street Journal. For retailers, some of whom ring up between 25 and 50 percent of their annual sales in the next few months, Christmas matters.
· Profits of leading corporations are up, and after violent gyrations that would do a belly-dancer proud, the Standard & Poor’s share price index is about 8 percent above the record level reached at the end of last year. To investors, profits matter.
Taken together, the economic news does explain the uptick in consumer confidence, although that confidence is dampened somewhat by gloomy economic news from Europe, China, Brazil, Russia, and other countries in or teetering on the edge of recession, by stagnant middle-class incomes, and a job market that could be stronger. But all in all, the good economic news at home outweighs the bad news from far away countries of which many Americans know very little, and stable incomes and a recovering job market are preferable to falling incomes and increasing lay-offs.
Despite rising confidence in the economy, most Americans think our country is on the wrong track. The improving economic outlook marches in parallel with a largely bipartisan fear that the institutions of government are just not working. The administrative branch, led by the president, can’t seem to protect our borders from an influx of children, or the president from intruders, or talk coherently about the threat of Ebola. The legislative branch, Congress, is dysfunctional. Republicans are fractured by a Tea Party that sees compromise as weakness, and Democrats are split between moderates appealing to independent voters and a left that is rallying the party’s “core” to keep the party on a “progressive” path in 2016.