Politics shapes views on economic recovery

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In a sharply divided election year, Americans find themselves equally divided on the outlook for economic recovery. Half of Americans are confident the recovery will continue throughout 2012, and nearly half — 48 percent — say they are not too, or not at all, confident, according to a recent survey by Bankrate.com.

Political affiliation has a strong influence on the way Americans view the country’s economic prospects. Seventy-four percent of Democrats feel the economy will continue to recover, while 65 percent of Republicans say they are not confident the recovery will last.

Independents are nearly equally divided with 46 percent confident with the recovery and 51 percent expressing pessimism.

Factors that influence confidence

Though confidence in the economy is strongly correlated along party lines, improvements in key economic indicators would bolster optimism across the political spectrum.

“When people think of the recovery, they think of the unemployment rate,” says Chris Christopher, senior principal economist at IHS, an economic consulting firm.

“It’s a lagging indicator, and it’s very high. People are jumping out of the labor force, and people know of friends who are either unemployed or underemployed,” he says.

Even with the significant decline in the headline unemployment number from 9.1 percent in September to 8.3 percent in January, where it currently stands, job security remains an issue for many Americans.

Bankrate’s Financial Security Index for March reveals that just 21 percent of Americans feel more secure about their jobs than a year ago. Feelings about job security have improved incrementally over the past five months since the index hit a low in November, when just 13 percent of Americans felt more secure.

However, roughly the same proportion of Americans — 20 percent — report feelings of less job security in March than one year ago. The majority, 58 percent, say they feel about the same as a year ago.

“There is so much uncertainty for people at the bottom of the income spectrum. The unemployment rate is 8.3 percent, but there is about 5 (percent) or 6 percent that is marginally tied to the workforce, working part time either because there is less work where they are, or they can’t find anything else,” says Ted Schmidt, Ph.D., associate professor in the economics and finance department at Buffalo State University of New York.

Employment isn’t the only factor hitting consumers in the wallet: Incomes have not kept up with price increases. Rather than growing at a reassuringly brisk pace over the past few years, real incomes for many have declined.

According to the Household Income Trends report for January 2012 by Sentier Research, the real median household income for January 2012 was $50,020. That’s 5.4 percent lower than the median income of $52,852 in June 2009, and 8.7 percent lower than January 2000’s median income of $54,790.

Follow the money

Income is a key indicator when it comes to buoyant expectations for the recovery.

High-income earners are much more confident than lower-income groups: 64 percent of Americans earning more than $75,000 say they’re confident about the economic recovery. Workers earning between $50,000 and $75,000 represent the next highest level of confidence, at 48 percent, according to Bankrate’s survey.

High earners may be able to afford a sunny outlook on the economy because “those at the top aren’t feeling the same pressure that everyone else is,” Schmidt says.

“There are a lot of people who are not doing well. Median household or family income adjusted for inflation for the past three years has dropped. Poverty rates have increased over the past three years. Wage growth has not outpaced prices — but according to our forecasts, they will sometime this year,” Christopher says.

Falling or stagnant wages, increasing prices and persistent uncertainty about what comes next form a potent brew of pessimism.

It’s not surprising, then, that lower-income groups feel the least confident. The majority of those earning less than $50,000 are not confident about a lasting recovery in 2012.

Politics and the economy

One word sums up the current state of the economy: uncertainty. Adding to the confusion, there’s very little agreement between the two major political parties on how to get the economy rolling again.

“The rift is fundamental — Republicans believe that growth will come only if we direct our attention to deficit reduction and smaller government, while Democrats largely believe recovery will only come via deficit spending,” says John Stewart, managing director of Vantage Economics.

“I would suspect this pattern will continue, unless one candidate or the other is able to communicate the nuances of economic recovery more effectively than the other. But it’s a complicated topic and something even very bright economists disagree vehemently over,” he says.

If economists can’t nail down a singular viewpoint, laymen have even less of a chance. Luckily for everyone, the nation’s prospects have been improving in recent months. The unemployment level seems to be receding, and employers have added more jobs to their payrolls over the past three months than economists expected.

Though political beliefs are a strong influence on how Americans view the recovery, unassailable evidence of a quickening economy would provide much-needed clarity.

Regardless of political affiliation, everyone would like to see that sooner rather than later.