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Derek Thompson

Derek Thompson - Derek Thompson is a senior editor at The Atlantic, where he oversees business coverage for the website.
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He is a visiting research fellow at the Committee for a Responsible Federal Budget at the New America Foundation. Derek has also written for Slate, BusinessWeek, and the Daily Beast. He has appeared as a guest on radio and television networks, including NPR, the BBC, CNBC, and MSNBC.

Why are Consumers Down if Production is Up?

By Derek Thompson
Nov 13 2009, 2:38 PM ET Comment

The Great Recession is over. GDP is rising at a 3.5 percent clip. Planned layoffs are slowing. Manufacturing is expanding. This is all good news! So why is the American consumer so sad?



It's gotta be about 10.2. Consumer confidence unexpectedly fell to a three-month low in October, even though most leading indicators say the last three months have been good for the economy. One indicator that hasn't been very good is the lagging indicator of unemployment, which finally crossed into double-digits in October. That number has a spook effect that is viciously cyclical. If the unemployment number chills consumer confidence, it suppresses demand, which holds down employer profits, which discourages employers from hiring, which raises the unemployment number, which chills consumer confidence ... and around we go.

Larry Summers recently framed the stimulus bill as a production stimulus, not a job stimulus. Said Summers: "It may be desirable to have a given amount of work shared among more people. But that's not as desirable as expanding the total amount of work." Our third quarter growth could be evidence of the stimulus' success in boosting production. Many economists said the stimulus was the difference between zero growth and our 3.5% bump. But increased production with sky-high unemployment is a tug-of-war over consumer confidence, and for now, unemployment is really pulling its weight.

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