“The only thing we have to fear is fear itself.” Franklin Roosevelt’s inaugural address on March 4, 1933 was an early recognition of the power of consumer confidence in bolstering our economy. In 1933 The US GDP was falling to about $57 billion, the low point of the Great Depression and about three-tenths of one percent of today’s economy. Unemployment would hit 25% that year. Roosevelt recognized that people had to believe that things would get better before it could actually happen.
Welcome to 2014, where the economy is showing plenty of life signs, but no one seems to believe that things will get better. According to the NFIB, small business optimism continues to decline, and the Gallup consumer confidence index is stuck at the levels of Spring, 2009, when the stock market and housing were collapsing, banks were closing, and the U-6 unemployment (which includes people who give up looking for work, and those employed part-time only because they can’t find a full time job) hit 16%.
Readers regularly refer to my post “Planning for the Strategic Triple Threat” in January of 2009 for it’s accuracy in predicting a deep recession, a slow recovery and weak growth afterwards. It wasn’t particularly difficult to look at the statistics and figure out that we had a big problem that would take some time to fix. The weak growth part of the prognostication is now going into its fourth year, and there are a few more of the same in front of us.
Are small businesses and consumers merely beaten down by the past 5 years, or do they smell a problem that the government and media are trying to deny? There are plenty of arguments for both views.
Housing sales have recovered, but the foreclosure Realtors whom I talk to still suspect Freddie Mac and Fannie Mae of massive inventory hold-backs to shore up the market. Those two entities have gone from quasi-government lenders of last resort to an arm of the US Treasury and the entire mortgage market for the country. From a political viewpoint, they can mightily influence the housing numbers in any direction they choose.
The official rate Unemployment is 7%, still the highest in 20 years, with the U-6 at 13.2%. The 7% number excludes anyone who worked even one hour in the previous month. Over the last 12 months, about 25% of all “new” jobs were in retail and hospitality. So the way the US Bureau of Labor Statistics counts the U-3 (official) rate, two 20 hour-a-week employees equal double the employment of one full-time worker.
The stock market had a banner year, but some analysts are pointing to the effect of Quantitative Easing on corporate profits. Banks are getting almost-free money to lend at very low rates. Unfortunately, that cheap money doesn’t seem to be widely available for consumers or small business. One exception is Sallie Mae funded student loans, which are up 50% ( a half trillion dollars- almost the size of the whole government stimulus bill) since 2008. It appears that a lot of unemployed college students are living on money borrowed from the government.
As I pointed out a few weeks ago, the retiring Boomers are spending less, and the Millennials aren’t consuming yet (unless they can buy stuff with student loans.) No consumer-led surge in the economy will come this year.
There is undeniably good news. The housing market has clearly stabilized, we are closer to energy independence than ever before, and China’s reduced appetite for commodities is relieving some of the price pressure on raw materials. Europe seems to have reconciled to the fact that at least one country will eventually default, and it probably won’t bring down the whole EU.
On the other hand, the President’s miserable approval rating (40%) shines only in comparison to Congress (19%). A weak budget compromise doesn’t portend a new era of cooperation in Washington. The impact of ending extended unemployment benefits, Obamacare taxes and “The Tapering” of QE3 (4? 5? whatever) remain to be seen, but will clearly not be contributing to economic growth.
Fear itself isn’t holding us back. The overriding issue is that we have become shockingly aware of how little we really know, or what it means. “The banks are sound.” “No one will be forced to give up their insurance.” “More people are employed than ever before.” “Taxpayers will make a profit on their GM investment.” “The check is in the mail.”
We’ve always known that we don’t know what we don’t know. The problem has become that what we think we know, we now know may not be true. If you had no windows in your house, how would you dress for today’s weather? Yesterday it was 70 degrees in South Texas. Tonight it will be in the 20’s. If my only information about the weather was from someone who wanted to sell me a pair of shorts, I could be in big trouble when I go outside.We’ve come to realize that all of our economic information, whether from elected officials or mass media journalists, comes from someone who wants to sell us something.
No, we are not there yet. Growth will continue to be anemic overall in 2014, although the numbers will be skewed by areas of prosperity (read fossil fuels). A bigger issue is that we’ve become a nation of skeptics, and skeptics rarely plunge into risky activities with unbridled enthusiasm. They have to believe that things will get better. Right now, we don’t believe.
My new book, Hunting in a Farmer’s World: Celebrating the Mind of an Entrepreneur, is now available on Amazon in paperback, hardcover and Kindle. It is an ownership book, not a management book, and is illustrated with the stories of real entrepreneurs who faced challenges that apply to us all.