Americans Think We're in Another Recession (They're Wrong)

More

Confidence plummeted in August, but the economy mostly moved sideways after a slightly better July

600 consumer recession REUTERS Brian Snyder.jpg

The U.S. may not be in a double dip yet, but Americans sure think it is. Although August was another extremely weak month for the recovery, the big drop in consumer and business sentiment didn't match the economy's essentially sideways movement during the month. While the picture looked pretty gloomy in August, it still appeared better than in June.

Let's begin by looking at some of the most important numbers. Here's a chart that I create each month with 15 major indicators. For each I color code the metric's verdict and the trend's direction (click to enlarge):

month in review 2011-08.png

Rather than consider each of these four groups individually, it might be more useful look at the overall balance of good and bad.

August vs. July

Looking at direction alone, August definitely appears worse than July. In August, just five indicators improved, while eight got better in July. For "change of direction," the results were even uglier: a mere three trends showed optimistic results in August, while twice as many were more promising in July.

But this should be taken in context. July happened to be a relatively good month. The economy had been clearly worsening from April through June. It appeared to reverse course somewhat in July, as spending rose and confidence ticked up. So some of the relatively worse results you see in August were still better than in June.

Confidence Plummets

The very worrying economic metric we saw in August was sentiment. Consumer confidence fell drastically to levels more consistent with recession than recovery. Small business sentiment also continued its painful march downward.

On some level, this is understandable. Hiring has been weak to nonexistent, and Americans are frustrated. Incomes have also been stagnant. The housing market continues to struggle. August was also a rotten and volatile month for stocks. Consumers and business are not pleased.

More Flat Than Down

As mentioned, red engulfs the data shown above. That looks bad, but if you consider the chart more quantitatively, then you'll see that it's showing several indicators as more flat than down. For example, consumer spending's decline was virtually negligible. The percentage decline in real disposable income also rounds to zero. The same could be said for the small drop in durable goods orders. The unemployment rate was completely flat.

Then, a few results cancel each other out. New home sales were down, but existing sales were up. Foreclosure activity picked up, but this is more an indicator that banks are taking more action to foreclose than more borrowers struggling.

The Even Bigger Picture

Here's another chart with some additional indicators. Most of these are harder to judge with a simple "good" or "bad" verdict, so no color-coding is provided:

month in review 2011-08 cht2.png

You can see that the increase in prices was modest. So inflation probably didn't have too detrimental an effect on consumers in August -- but they also didn't get much relief from high prices. While we saw gasoline tick down a bit, other commodity prices rose.

Meanwhile, interest rates continued to fall. Credit being so cheap should be a good thing for the economy, if businesses and consumers bother using it.

But the global picture worsened a bit during the month. Credit default swap spreads on sovereign debt widened in many cases, indicating that investors are more worried about the global economy. Though CDS spreads did tighten for a few nations, including the U.S. -- since it fixed the debt ceiling problem.

Where We're Headed

This analysis is somewhat backwards looking, since it considers August's data. Most of September's results aren't available yet, however, so it's the best we've got. August was clearly another bad month. But the fundamentals of the economy didn't look that much worse than they did in July, which was an improvement over June.

The big problem is sentiment. Expecting recession can create a self-fulfilling prophecy. If Americans' spending begins to match their pessimism, then the economy could begin contracting again.

Notes/Disclaimers about the matrices above:

  • This is by no means completely exhaustive, but it does take into account many important statistics.
  • This represents a somewhat quantitative summary, but no weighting has been used to create an economic index, so the reader can decide how important each statistic is for himself or herself.
  • There is some overlap.

Image Credit: REUTERS/Brian Snyder

Jump to comments
Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
Get Today's Top Stories in Your Inbox (preview)

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Adventures in Legal Weed

Colorado is now well into its first year as the first state to legalize recreational marijuana. How's it going? James Hamblin visits Aspen.

Video

What Makes a Story Great?

The storytellers behind House of CardsandThis American Life reflect on the creative process.

Video

Tracing Sriracha's Origin to Thailand

Ever wonder how the wildly popular hot sauce got its name? It all started in Si Racha.

Video

Where Confiscated Wildlife Ends Up

A government facility outside of Denver houses more than a million products of the illegal wildlife trade, from tigers and bears to bald eagles.

Video

Is Wine Healthy?

James Hamblin prepares to impress his date with knowledge about the health benefits of wine.

Video

The World's Largest Balloon Festival

Nine days, more than 700 balloons, and a whole lot of hot air

Writers

Up
Down

More in Business

Just In