U.S. Economy: Not as Bad as You Might Think

The drumbeat of negative news about the U.S. economy has continued without pause since the financial "crisis" began to unfold last month. Stocks are in the tank, consumer confidence is at a 41-year low, and mortgage foreclosures are on the rise. But is the state of the economy really as bad as everyone seems to think it is? Maybe not.

All of the major Wall Street indices rose sharply October 28, with the Dow experiencing its second largest gain ever, nearly 11 percent. But that could be a fluke. It could be what's affectionately known as a "dead cat bounce," a temporary jump in a bear market. Or it could be that federal efforts to shore up the economy are starting to have an effect. It's still too early to know for sure, so the Dow alone, or any of the major indices, cannot be taken exclusively as sufficient indicators of economic strength or weakness.

What other indicators are there? While we are incessantly bombarded with bad economic news, the positive factors of the economy rarely receive any attention. Let's start with the unemployment rate. First, I'll say that it's higher than we would like it to be. But the latest numbers available tell us that it really isn't that significant. For September, the unemployment rate held steady at 6.1 percent, or 1.1 percent higher than the generally accepted economic definition of full employment of the economy. Using the inverse of the unemployment measurement, this means that 93.9 percent of those actively looking for work are able to find it. And historically, the current unemployment rate is not out of the ordinary.

A quick look at historical rates shows that under Truman the unemployment rate hit 6.05 percent; under Eisenhower 6.84 percent; under Kennedy 6.69 percent; under Johnson 5.64 percent; under Nixon 5.95 percent; under Ford 8.48 percent; under Carter 7.18 percent; under Reagan 9.71 percent; under Bush (41) 7.49 percent; under Clinton 6.91 percent; and under Bush (43) 6.1 percent.

Another indicator: housing sales. For September, existing home sales rose 5.5 percent, the largest amount in 5 years. New home sales went up a higher-than-expected 2.7 percent in September. Additionally, the price of a barrel of oil is at its lowest since May of last year, down nearly 60 percent since this summer, and gasoline prices have dropped below 2007 levels. The dollar, also, is experiencing a bit of a rebound, hitting a 13-month high against major currencies.

Now, this is not to say that everything is rosy and that Americans should have a warm, fuzzy feeling about the state of the U.S. economy. But it is important to note that there are bright spots out there, if you are willing to recognize them. The trick now is getting consumers to understand that the U.S. economy is not about to collapse and that there is no need to hoard their money. Consumers fuel economic growth through spending, and right now negative perceptions are preventing consumers from purchasing many goods and services.

Strategic Forecasting, a private geopolitical intelligence firm, says that apart from the current crisis in the financial sector, the broader economy has not shown signs of an economic problem. In a posting on their web site October 29, STRATFOR says, "Apart from the financial sector, the only segments of the economy in recession are the housing and automotive sales sectors. Given that the actual demand for housing in the United States is relatively healthy, however, the housing sector recession could be addressed if excess inventory is cleared out."

But, in the end, the state of the U.S. economy is determined by how willing Americans are to part with their cash. And their willingness to spend is directly influenced by their perception of the state of the country's economic health. Getting both sides of the story could go a long way toward informing that perception.