Why are people so chipper about the economy?

According to people who know, consumer confidence has reached a high point for 2009, driven by an improving short-term outlook.

Now the question. Why? Is it because there is genuinely good news about the economy? Or is it because if you tell people something often enough, they’ll believe it? In the wake of the collapsing economy, there was pushback against the media for telling “too much bad news.” The assertion, not without merit, was that the media was making it worse.

Since then, politicians have done their best to put a happy face on things by viewing a declining economy as good news because it isn’t declining as fast as it was. And the media have picked up on the “improving economy” narrative in many of their stories.

But where’s the evidence that things are improving?

Today, for example, Medtronic announced it’s going to slash 1,500 jobs, 600 of them in the Twin Cities.

Everyone is waiting for the real estate market to bounce back, and while there have been a few stories documenting an increase in home sales, I tend to pay attention to clued-in people like Teresa Boardman, who writes the St. Paul Real Estate blog and yesterday suggested that it’s a stretch to say things are brightening.

In the last couple of weeks I have been reading that we have hit bottom and things will get better. I want to believe it but I don’t.

Activity has picked up in the housing market but the prices have gone down, there are too many foreclosures and there are two many people who want to sell but can not because they owe more on their homes than they can sell them for.

On Monday, the stock market jumped 3 percent on “brightened” housing news. But today, reports show a steep decline in housing starts for apartments and condos.

The auto industry has just ordered many dealerships in Minnesota to close. And on Midmorning today, legislators reminded us that the tide of job losses in Minnesota aren’t expected to ebb until next year… maybe. And in the wake of the mess at the Capitol, hospitals are laying off people already.

Maybe things are getting better for people. How about you? Are you more optimistic? Why or why not?

  • MR

    I’m not particularly optimistic. I think that we may have slowed the descent somewhat, but I’m not convinced that we’ve hit bottom.

    As to home sales, I’m currently looking for a house. What it looks like is that there is a lot of overpriced crap on the market. Nice houses seem to be selling pretty well, but only if they’re priced right.

  • I’m not buying that the economy is improving either. I may be biased in the fact that I am currently unemployed, but I am noticing other (admittedly anecdotal) signs.

    I am on a Freecycle mailing list. The idea is if you have something you don’t need anymore you post on the list what you have and someone interested gets in touch with you to pick it up. There has been a HUGE spike in postings from people asking for items–some ridiculous (iPod, notebook computers, etc.).

    Job postings are way down. Companies that used to constantly be looking for people to hire, even when fully staffed, have stopped posting. For the postings that do exist, the pay scale is sliding down. It’s a little self-centered, but I don’t think I’ll genuinely believe the economy is better until I’m back in the working force, making around what I used to.

  • Neal

    Several things are driving the optimism.

    The first being the calendar. The statistics say that the average post-war recession lasted 16 months. We are past that 16 month mark at this point, so some assume that a recovery is underway.

    Second, the trope–“best time to buy real estate”–is seeping through the makret. Speculators are again moving in, assuming that an upward movement in prices is in the offing. And, the natural demand by first time home-buyers is resuming producing some up-ticks in pricing.

    Third, companies have cut back in ways necessary to ensure less losses and possibly even profits. As a result, stocks are moving up gain.

    Fourth, the banks “passed” the “stress-tests”. They say they are making money and are making noises about paying back what they owed.

    These are the supposed “green shoots” of the recovery. But they are indicating a phoney recovery.

    First, this is not the average post-war recession. This is a major turning point in the economy. Manufacturing is disappearing (from 2000-2006 manufacturing employment dropped 33%–during th boom!!). High-tech proved to be faster to export than manufacturing. The remaining engine of the economy, the FIRE sector (finance, insurance, real estate) just blew up. Where is the new enginer of the economy? How can the US compete with a world that pays many of it’s workers 3 dollars and hour or less? Can the US survive as a nation of service-sector workers?

    Second, the fall in foreclosures is temporary and has to do with the sub-prime loans that were the most tenuous and fastest to fail have failed. There is a whole new wave of foreclosures that are coming in the welathier suburbs that have to do with re-setting rates in ARMs and pick-a-pay type morgages that were offered to the more credit-worthy customes. Ansd the failing job market means that more and more middle class and wealthy people will be unable to pay their bills.

    Third, companies are more profitable becasue they have cut workers, cut pay, cut benefits and “off-shored” jobs. That is hardly good news for the workers and former workers.

    Fourth, the stress test was a sham. The stress was watered down so the test was easier than probable actual conditions that the banks will have to face in the next few months. The dubious assets were allowed to be valued at spurious prices because the market would price them differently (not “mark to market”, but “mark to model”). Internation financial bodies predict that there are 3 trillion dollars more in losses coming to these banks in the next few years. And regional banks are coming into danger territory also. The problem is not solved.

    And as for my own experieince–we have laid off 75% of our shop workers, have had cuts in hours and benefits, are bidding against people who are bidding at material cost plus a few pecent–with no money for labor.

    It’s bad, but we’re not at the bottom yet.

  • bsimon

    “Why are people so chipper about the economy?”

    Its all relative, isn’t it? At this point of 2009 the economic outlook is as good as its been all year. Therefore shouldn’t consumer confidence be more ‘chipper’ now than in, say, January?

    Perhaps the error is in the use of ‘chipper’ more than anything. For instance, from the conference board, “[consumers] claiming business conditions are “bad” declined to 45.7 percent from 51.0 percent, while those claiming business conditions are “good” increased to 7.6 percent from 6.9 percent.”

    If nearly 46% say business conditions are ‘bad’ while 7.6% say ‘good’, is that really a ‘chipper’ outlook?

  • AOdens

    Isn’t it fair to point out that jobs numbers and housing sales are lagging indicators for the economy?

    I’m feeling slightly more optimistic. I”m not sure we’ve hit bottom, but I think it’s near. As our own Chris Farrell suggests, we missed the abyss. Now we just need to slow down enough to turn it around.

  • Bob

    I must be hangin’ with the wrong crowd — I’m not running into too many people who are chipper about the economy.

    IMHO, Neal’s comment gives a pretty good recap as to why those among us who are of a more realistic bent aren’t real enthused about the economy.

    If we have avoided the abyss, as Chris Farrell asserts, I believe we’re in for a very flat period that will last several years, if not longer.

  • Neal

    Chris Farrell has been consistently underestimating the nature and extent of this crisis. He was one of the people who kept saying the crisis was “contained” until it was clear that all of the world was being affected. So his reassurance means little at this point.

    We have papered over the “abyss” with delusion and deception. The income of workers has been flat or falling for a long time. The “prosperity” of 2006 was manufactured through the means of credit and “financial innovation”. Once again, the price of housing will be determined by the age-old ratio of affordable house price being three times the annual income of the household. Without excessive borrowing, the future of the economy holds contraction, not expansion. The banks are not financially sound. They are only part way into their losses. Many of them will fail unless government pour more trillions into them. The stimulus package, ex-taxcuts, amounts to an extra 200 billion a year in spending–the cutbacks due to shortfalls at the state and local governments will be over 350 billion, far out-weighing the effect of the stimulus.

    Sorry to be so negative, but it has a ways to fall yet.

  • Bob Collins

    I vaguely remember someone saying the property values for taxation are about a year behind “reality.” So theoretically, we get our big payoff for our “declining” values next year.

    But I haven’t heard that discussed much in the context of the propertytax and the problem cities are having.

    I can report, however, that in my city of Woodbury, they were putting in a spiffy new sign at City Hall along with the requisite stonework around it.

    Back to basics, you know.

    (Woodbury doesn’t get LGA)

  • Paul

    It’s basic psychology. One thing we know for sure is that americans don’t get reliable information or advice about the economy, and even if they did, by and large they lack the basic knowledge of economics to do anything with such information anyways. So these confidence levels are never influenced by any real economic analysis.

    What is at play is the basic animal tendency to avoid painful stimulus. Bad economies and news of bad economies cause discomfort in the form of anxiety and fear, not mention unemployment and foreclosure. Eventually coping mechanisms come into play. Denial, avoidance, etc. It can be very difficult to distinguish between denial and “optimism” sometimes. The tendency to grasp at straws is well documented. The thinnest evidence of recovery at this point will suffice for many people to adopt a more positive attitude. I find myself doing it simply because I’m tired of the recession and I want it to be over.

    There is little reason for optimism in the actual economy, there are huge structural problems that have not been addressed, and many things are still going to get worse before they get better, but I want this to be over.