Anyone with an interest in finance keeps track of the growth and unemployment figures, and according to those the US economy is finally recovering from the damage done by the 2008 banking crisis. Job creation figures are especially reassuring with more than 200,000 new jobs created every month in the year to date. As for growth the picture isn’t quite as good, with the economy actually shrinking alarmingly in the first quarter, but the trend is now heading in the right direction again.
What doesn’t seem to be heading in the right direction is confidence. We’ve all seen the effects of a loss of confidence recently in the precious metals markets, where gold and silver especially are falling way lower than the economic situation would seem to predict. The most likely explanation is that investors simply don’t believe they’ll get their money back if they buy into these commodities, so they’re looking elsewhere – and the lack of demand pushes prices inexorably downwards. The same effect can apply at a higher level, affecting the whole economy, and there are strong signs that could be happening right now.
One example of this trend is the recent American Values Survey. Since 2010 this survey has been asking respondents whether the American Dream – the idea that if you work had you can be successful – is still a valid idea. The numbers who believe it is has now dropped to just over 40 percent – the lowest since the question was first asked.
On the surface at least it’s surprising that people are so pessimistic. US unemployment is now at a six-year low, according to September’s figures – the jobless rate is now down to 5.9 percent. Second quarter growth shows that GDP jumped by 4.6 percent, the fastest since 2011. These numbers don’t seem to be resonating with the American public though. So what does that mean for the economy?
If people lack confidence they will be more cautious when it comes to spending money. Any spare cash that might have gone towards buying goods or even been invested will be saved or used to pay down existing debts. That means lower retail figures, which is a real worry with the holiday season – the traditional spending splurge – coming up. While nobody’s predicting a financial Grinch stealing retailers’ Christmas, seasonal sales don’t have to fall by much to make a dent in the economy. Lower retail sales mean lower employment in the retail sector and less security for those who do have jobs, which leads to even more cautious spending. Manufacturers also take a hit, and the effects ripple out across the economy.
Unless it’s turned around, low confidence will start to pull growth figures down and that will inevitably affect the stock markets. These are already unstable, as seen by last week’s sudden fall and recovery of the Dow, and speculation about a renewed debt crisis in the Eurozone isn’t helping any. It looks like the USA is still making progress at dragging itself out of the recession, but as long as the American people aren’t feeling the benefits that recovery will remain fragile.