Article by Ruchir Sharma: “The GDP report later this week is likely to show that economic growth in the US once again topped 2 per cent. But you wouldn’t have seen this coming in measures of the popular mood. Consumers keep spending, even as the gap between what they spend and the pessimism they express in surveys has never been higher.
Currently the two main consumer surveys, from the Conference Board and the University of Michigan, are at lows typical of a recession, not a steady expansion. In fact, lower confidence readings have been registered only twice over the last three decades, including during the global financial crisis of 2008.
The same disconnect is visible in key measures of business confidence. Several times since the pandemic, the ISM surveys of manufacturers and service firms have signalled a recession, which never came. The newer, broader business surveys from S&P have been closer to the mark, but despite a recent rebound, all these readings remain at levels weaker than the actual growth picture.
The monthly survey releases still get a lot of attention in the media and on Wall Street, which is a bit odd since the results are essentially broken. Falling response rates distort their findings. Social media seems to breed discontent regardless of how fast the economy is growing. In a polarised environment, partisan voters always think conditions are dismal when a rival party is in power. For these reasons and more, recent studies have found the reliability of major surveys falling not only in the US but in the Eurozone and UK as well.
Perhaps most significantly, surveys are naturally skewed by rising inequality. Unlike aggregate GDP growth figures, surveys give equal weight to every respondent. So they are never going to capture or foretell the full extent of GDP growth, when growth is increasingly dependent on the spending of a few. And that is what is happening now. In the US, the richest 10 per cent account for half of consumer spending, up from a third three decades ago. It should not be surprising the majority sounds pessimistic…(More)”.
