Ali Velshi for CNN: Unhappy with the economy? Here's why

August 30th, 2012

By Ali Velshi
August 30, 2012: 6:05 AM ET






(MONEY Magazine) — For the third year in a row we’ve experienced a thaw in the economy only to be followed by some real dog days. The U.S. is barely growing, and a lot of the reason is that you aren’t spending.

So it seemed like an opportune time to take a new look at a set of measures I wrote about in March of last year — the economic indicators that have the greatest effect on how you feel about the economy. As before, I rank the current level of each indicator on an ascending scale of 1 to 10 based on past performance.

And they tell an interesting story: Three of the five indicators show improvement, but you’ve nevertheless got very good reasons to feel like the economy remains stuck in a rut.

Jobs and income: A mixed bag

At 8.2%, the unemployment rate is almost a full percentage point lower than it was a year and a half ago. Two problems: First, that number is still high. Second, it’s stopped declining as the rate of job creation has slowed to a crawl.

The income numbers are even worse: The inflation-adjusted median wage fell 2% in 2011, after ticking down 0.5% in 2010. So our income score declined from 4.2 to 1.5. (The March 2011 score was even higher, but that was based on a data set that hasn’t been updated. These scores are based on Bureau of Labor Statistics numbers.)

The data so far for 2012 show wages are flat, which isn’t exactly cause for celebration.

Savings down, homes up

That’s a problem in an economy where the consumer accounts for about 70% of all activity. The more cushion you feel you have, the more you’re likely to spend.

We seem to be sitting on the springs right now. Gas and food prices bounce up and down, and consumer confidence and discretionary spending go with them.

Credit, while cheap, is readily available mainly to low-risk borrowers. What little increase in spending there is seems to be coming at the cost of a savings rate that, after rising in the financial crisis and its aftermath, has fallen back. (Here, too, the prior score was higher than what’s shown in the chart above due to revisions in the data.)

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