Economics, U.S. Economy

Has Obama lost control of economic expectations—again?

Tell me what U.S. consumers are thinking, Reuters:

Americans felt worse about their personal finances in early February, even as they saw a light at the end of the tunnel for the jobs market, a survey released on Friday showed. The Thomson Reuters/University of Michigan overall index of consumer sentiment fell to 72.5 in early February from January’s 75.0, which was the highest level since February 2011. The latest figure fell short of the median forecast of 74.5 among economists polled by Reuters. “This pattern of responses – less favorable current assessments and more favorable prospects – is not surprising. It simply indicates that consumers find their current situation all the harder to bear when improvement is finally in sight,” said survey director Richard Curtin said in a statement.

When you drill down into these numbers, you find out two things. First, consumers are still pretty dour. Most of the drop in the index was caused by a decline in the current conditions index, which came in at 79.6 vs. 84.2 previously. Indeed, 45 percent of respondents said they were worse off financially than a year ago, up from 41 percent in January and 39 percent in February 2011.

Second, the drop would have been much worse if not for much greater optimism about the job market, with 34 percent of respondents saying they’ve been hearing good things about employment. This, Barclays Capital notes, was the highest percentage in the history of the survey. And 32 percent said that they expected better business conditions a year from now, which was the highest reading since May. Finally, 31 percent expected lower unemployment levels in the next 12 months, which was the largest percentage since 1984.

So people think today stinks, but tomorrow will be way better. Obviously, the difference stems from an economy where incomes are flat to falling and unemployment (and underemployment) remains high, but where the recent January jobs report generated headlines about an economy that’s turned the corner. Indeed, the White House will add to the optimism next week when the new Economic Report of the President upgrades the administration’s economic forecast. And recall this bit from “60 Minutes” in December:

Steve Kroft: Do you think that you might have the unemployment rate down to eight percent by the time the election rolls around?

President Barack Obama: I think it’s possible.

It’s hard to hear all this and not recall the Obama economic team’s infamous 2009 forecast that unemployment would not hit 8 percent if Congress passed the stimulus. Are they again risking over-promising and under-delivering —and disappointing voters? For instance, no one is really sure of the economic impact from a messy default by Greece and an exit from the euro. Or how about an Israeli strike in Iran? Or maybe the impending 2013 tax hikes depress business confidence as the year wears on? I dunno, it seems like right now Americans are expecting the recovery to accelerate dramatically, creating the possibility of big disappointment if it doesn’t.

Obama would much rather have voters make a decision in November based on the economy they think they are going to get rather than the one they have.

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