WASHINGTON -- Americans remain "deeply pessimistic" about the future of the U.S. economy, with a whopping 87 percent saying it's getting worse, according to a Gallup poll.
It's unlikely this number will appreciably decline, even after the economic figures begin to improve. That's because consumer confidence is always a lagging indicator that doesn't turn up until long after the nation's economy has begun to bounce back.
That's bad news for the Republicans, who need to show some tangible evidence of an improving economy in order to blunt the Democrats' portrait of a country mired in recession, or even worse.
The country isn't in a recession as it is commonly, if somewhat arguably, defined: two consecutive quarters in which the economy has stropped growing. In the first quarter of 2008, the economy did grow, but only just; it inched upward by an anemic .9 percent. Economists expect growth in the second quarter to come in at around 1 percent or more, moving higher in the second half. But such definitions prove meaningless to people who have lost their jobs or are struggling to make ends meet amidst $4-a-gallon gasoline, higher food bills and a troubled economy.
In 1980, when Ronald Reagan said the country was in a depression, he drew ridicule from Jimmy Carter's advisers, who said he didn't understand the definition of that term. At a Labor Day campaign kickoff rally of immigrants near the Statue of Liberty, Reagan said, "Well, if it's a definition he wants, I'll give him one. A recession is when your neighbor loses his job. A depression is when you lose yours. Recovery is when Jimmy Carter loses his."
Still, it is worth making the argument that the nation is not in a recession, not when the economy is still growing (albeit slowly), the unemployment rate remains relatively low, at around 5 percent, and American exports are hitting new highs. The economy will probably begin pulling out of its tailspin this summer. Indeed, there are promising signs the turnaround has already begun.
Last week, the Commerce Department reported that new home sales rose 3.3 percent in April, to a seasonally adjusted rate of 526,000 units. This unexpected increase came after months of steep declines in sales, suggesting that a turnaround could be imminent.
The Commerce Department also said that durable goods orders slipped by a smaller-than-expected 0.5 percent. When transportation orders were excluded, factory orders increased 2.5 percent, the largest such increase in nine months. Notably, factory orders for electrical equipment and appliances rose by 27.8 percent, the biggest increase on record.
Perhaps the most promising sign of all is the new home-sales increase, which suggests that lower prices and interest rates are drawing buyers back into the market. Housing prices are still too high. But they continue to decline as prospective buyers wait to scoop up bargains resulting from the subprime mortgage foreclosure debacle.
"With the interest rate spread ... normalizing, conforming mortgage rates should go down a bit, an important trigger for stronger home sales," said Wall Street economist David Malpass. Malpass thinks GDP growth, consumption and some corporate profits "will exceed current expectations in the second quarter and the second half ... as (the Fed's) monetary stimulus takes full effect."
The soaring value of oil and record gas prices remain a huge drag on the economy, though oil costs will be somewhat offset by lower interest rates. A stronger dollar would help bring down oil prices, too. Meanwhile, the tax rebates and the Fed's rate cuts are slowly working their way through the economy's bloodstream.
Democrats want us to believe the economy is in crisis, but it isn't. We are in a sharp slowdown, one of many our country has experienced and overcome many times before. It is instructive to recall the economic upturn in the second half of 2003 in response to the Fed's deep rate cuts when "stocks, bond yields and the economy all soared," Malpass notes. At this point, there are glimmers of recovery that suggest this downturn may be shorter and shallower than anyone predicted. Americans are understandably pessimistic, in part by what is going on in their states and communities, but also due to a drumbeat of negative stories on the nightly television news, a gloomy oracle that sees nothing but doom ahead.
Yet through it all, we remain the largest economy in the world, producing $14 trillion worth of goods and services each year, selling $1.4 trillion of stuff abroad in a vigorous global economy running flat-out on trade. We got whacked hard by the housing collapse and credit crunch, but it's good to remember that we have a very resilient economy that has pulled us out of innumerable panics, recessions and depressions.
We'll grow and pull ourselves out of this downturn, too, a little wiser for the mistakes that were made. Things may appear a bit gloomy now, but there is every reason to be confident about America's future.