Optimism In The Economy Hits A New 'Post-Recovery' Low

• by Stephen Kraus , Bob Shullman , August 17, 2011

Perhaps it comes as little surprise that our most recent Mendelsohn Affluent Barometer, conducted in late July, found that Affluent optimism in the economy has fallen to a new low.

Conducted in the midst of the debt ceiling negotiations, we found that only 34% of Affluents were optimistic about the U.S. economy going forward, down from 49% just two months ago, and down substantially from the most recent high of 57% in December 2010 (when it was buoyed by the bipartisan agreement to extend the Bush-era tax cuts and unemployment benefits). Even more telling, it is the lowest in the two-and-half-year history of our Affluent Barometer, and by extension the two years since the recession "officially" ended.

Of course, some might argue that the 11th hour compromise of Aug. 1, reached just days after our July survey closed, might have boosted optimism. But it seems that the one thing Democrats and Republicans could agree on was that the eventual deal was unsatisfying (political cartoonist Don Asmussen offered a cutting faux headline, with a nod to this month's release of Rise of the Apes: "Debt deal postpones big decisions until apes take over the planet.... Debt committee must have three orangutans"). When asked why they are pessimistic about the economy, most Affluents cited a combination of government debt and political ineffectiveness that show little sign of immediate improvement. One respondent told us: "There is no end in sight for the recession; unemployment rates are dismal; republicans refuse to raise taxes to generate revenue for essential services; democrats are overspending... there is no money left for anything." Another put it this way: "The two parties can't get along or agree on anything so it seems. Our debt is soaring and it's like using your Mastercard to pay your Visa."

Given the times, perhaps the question is not "Why is optimism only 34%?" Perhaps the better question is: "What are those 34% thinking?" Again, we asked our Affluent Barometer participants to describe their thinking in their own terms, and we discovered four major themes underlying their optimism. Some cite first-hand experience with job market improvements. Others believe (hope?) we have hit the bottom of an economic cycle, and will inevitably bounce back. Still others point to believe American society - laypeople and organizations alike - have become more frugal and less materialistic, bringing about better financial footing and more satisfying lives. And still others have deep personal optimism, or a profound belief in the American spirit, that endures regardless of the challenges presented.

Key Themes Underlying Optimism	Representative Responses: Reasons for optimism about the U.S. economy
Firsthand experience with economic improvements	"I wasn't even really looking for a job and I just got a full-time job and I start next week. Several of my friends have gotten new jobs...fairly easily. I think the economy is bouncing back...better than the media lets on."
Some feel the economy is cyclical, and we've hit bottom	"Things are cyclical and it will probably be a couple more years to recover." "Things are cyclical and it will probably be a couple more years to recover."
Some have a personal optimism or belief in the American spirit that remains strong, regardless of the challenge	"I try to be positive about life and try to stay away from the negative. It makes for less anxiety." "Because the United States always comes back stronger"
Some believe we have become more frugal and less materialistic	"I think that everyone and business have become humble. Cutting costs and living on less.""Americans are paying down their debts, when they get their cards paid down and feel comfortable again, they will start spending. Consumers account for 70% of the U.S. economy."

Optimism in the U.S. economy, and in one's own future, generally runs 10-15 percentage points higher among younger consumers (for example, in the 18-34 age range). Perhaps it is the natural optimism of youth; perhaps younger Affluents are better poised to see and take advantage of opportunities in today's job market. Regardless of the reasons, and regardless of age, it is clear that these pillars of optimism will have to remain strong, and grow more prevalent, if the economy (and the Affluent marketplaces that drive it) are to gain strength.