"Recent News: The Divergence Between Quantitative And Qualitative Trends Continues. How Much Longer Can That Continue?
Recent news includes statistics that only emphasize the phenomenon I’ve written about before: look at quantitative trends and you’ll be a pessimist but if you look at qualitative trends you’ll be an optimist. As you read the following, consider these questions: How long can statistics such as retail sales keep going down while confidence in the prospects of a recovery keeps going up? At some point, if the quantitative statistics don’t flatten out and start moving north, wouldn’t confidence start heading south? Alternatively, if confidence keeps going up, will that be enough to pull the economy northward with it? I think the answer has to do with what is giving rise to the confidence, and that is Barack Obama.
First, recent quantitative statistics:
- Retail Sales: Seeking Alpha summarized the news as follows: “Retail sales fell 1.1% in March vs. +0.3% consensus. Y/Y sales dropped 10.7%. February revised to +0.3% from -0.1%. Total sales for Jan.-March declined 8.8% from a year ago.”
- Producer Price Index: They summarized the news this way: “Producer Prices declined 1.2% in March, vs. consensus of 0.0%, and after gaining 0.1% in Feb. and 0.8% in Jan. Core PPI 0.0% vs. consensus of +0.1%. Year-over-year, prices dropped 3.5% vs. consensus of -2.2% and February’s -1.3%.”
On the qualitative front:
- The Washington Post reported that a recent research study by the Pew Research Center for the People & the Press shows that Obama has the support of 88 percent of Democrats as opposed to only 27 percent of Republicans approving. But Republicans are actually shrinking as a percent of the population even as the percent of Americans who consider themselves Democrats is increasing, so the net support for Obama is very high. That support is also very deep (that is, the people who support Obama support him intensely). The news media is stressing the fact that this is the widest partisan gap in approval rating of any president in the modern era. But I think the news about the gap between Democrats and Republicans is becoming increasingly irrelevant, largely because of the Republicans’ incredibly inept communications campaign.
- I think the real significance of this poll is seen when juxtaposed with the recent New York Times poll that showed that despite the fact that 70 percent of the respondents were “very” or “somewhat” concerned that someone in their household would lose their job within the next 12 months, “the number of people who said they thought the country was headed in the right direction jumped from 15 percent in mid-January, just before Mr. Obama took office, to 39 percent today, while the number who said it was headed in the wrong direction dropped to 53 percent from 79 percent. That is the highest percentage of Americans who said the country was headed in the right direction since 42 percent said so in February 2005.”
I believe that we are increasingly seeing that popular support for the president is translating into broad confidence that things will improve. But the president continues to work down expectations, which he should be doing. Thus, people who believe in both him and the nation’s eventual economic health must be willing - at least for now - to give Obama lots of time to get things moving in the right direction. From that I conclude that the general population is “hunkering down” for a long economic winter. That will probably show up in continuing depressed statistics such as car sales and other retail sales, as well as the sales of homes. And that sounds to me like at least a temporary self-fulfilling prophecy of continuing poor quantitative statistics.
Revisiting the core question: How long can the divergence between optimism that the country is going in the right direction coexist with worsening economic data? The answer in my opinion: as long as Obama keeps in place his constituency of the broad economic and political middle. I also think that the poor economy is going to be around for a while, so that if Obama is able to keep his support in place (which I would not bet against), he will far surpass any other president’s reputation for being a great communicator. But if he doesn’t, the optimism that will be a necessary ingredient to a recovery will not be there. And the economic recovery will take longer to evolve and will probably emerge with much less vigor.
Isn’t it ironic, therefore, that the resurrection of wealth so desired by the Republicans will be dependent on the popular support of the Democratic president?"