A seemingly contradictory line up of recent economic indicators has been drawing a lot of attention as of late, leaving in its wake a population of economists and economic analysts who have suddenly been struck dumbfounded. They are, after all, dealing with an economy that just refuses to stick to their models and predictions.
Here is a run-down of some of the more “perplexing” measures of the past month:
- The US Bureau of Labor Statistics released its April Employment Situation Report in which it indicated that non-farm payroll employment rose by 244,000 in April (an unexpected gain that far over-reached even the most optimistic of predictions). According to the BLS these job gains occurred in several service sector industries, as well as manufacturing, and mining. But this good news was tempered by the announcement within the same report that the unemployment rate has also increased to 9.0 percent, up from 8.8 percent in March.
- The National Federation of independent Business (NFIB) reported that its small business optimism index fell for the second straight month in April to 91.2 from 91.9 in March.
- The Thomson Reuters/University of Michigan preliminary consumer sentiment index rose more than foretasted in May to 72.4, a three-month high, from a final reading of 69.8 in April. The index was projected to rise to 70, according to the median forecast of 62 economists surveyed by Bloomberg News.
- The Commerce Department reported that the economy grew at a 1.8 percent annual rate in the January-March quarter, a decrease from the 3.1 percent growth recorded in the last quarter of 2010.
- According to the U.S. Commerce Department, retail sales (as well as consumer spending overall) has increased overall during the past few months. But the extent of the increase is mixed across different sectors and studies, as this AP article suggests.
Add to this the fact that trading on Wall Street has never been better; the stock market been trending upward since September 2010. Here’s what the Dow Jones Industrial Average looks like, and here’s NASDAQ.
What does this all mean?
Perhaps a hint to the answer lies with a one of the conclusions put forth in the NFIB survey:
While reports of net jobs created by small firms stayed positive, the numbers posted did not match the surprising gains cited in last week’s Labor Department report. This suggests that the bulk of new hiring is happening in larger firms and the smaller counterparts on Main Street—the ones traditionally responsible for leading the country out of recessions, are still struggling to hire.
Underlying the contradictory economic reports and measurements is perhaps a simple matter of perspective. Economic growth and recovery may indeed be happening, but it’s almost exclusive to those bigger companies that can use economies of scale to help off-set the rising cost of commodities and weaker consumer demand as well as to those investors who are using the weak dollar and cheap financing to their advantage. Moreover, this tentative “recovery” is not being felt equally across industries.
On the other end of the spectrum are the majority of small business owners and their employees who are feeling the pinch of rising commodity prices and the subsequent inflationary push, yet are struggling with sluggish sales, increasing health care costs, and a whole lot of uncertainty. I would also add to this group a hard to identify population of under-employed and a growing portion of middle-class America that is struggling to get by.
In the middle of this growing divide stands the consumer. These days, the majority of consumers may be in a tug of war between the not so pretty economic reality of unemployment (or under-employment), less disposable income, less available credit, inflationary pressures, and economic uncertainty on one side, and the pent up desire to consume coupled with an innate need to push away all the gloom and doom with a dose of optimism, on the other side.
Who doesn’t want to believe that, yes, the economy is improving- especially among those who are struggling?
In short, the seemingly contradictory economic indicators that have recently been grabbing headlines may be an indication of the vastly different experiences to be had in this topsy-turvy American economy. America has become schizophrenic, a country characterized by a growing divide between those who have and those who are struggling to have, and the remedy to this ailment seems far off indeed.