PRINCETON, NJ -- Friday's report that showed the U.S. economy continuing to lose jobs in December took a little steam out of the growing jobs euphoria on Wall Street and in the nation's capital. While Gallup's Job Creation Index continues to demonstrate that there was never any real foundation for December's jobs optimism, the increase in consumer spending last week is good news for the economic outlook, as is continued economic optimism during the first full work week after the holidays.
What Happened (Week Ending Jan. 10)
Consumer Spending increased last week, as self-reported daily spending in stores, restaurants, gas stations, and online averaged $68 -- up 15% from the previous week and 10% from the same week a year ago. This marks only the second time in the past year that spending has exceeded its year-ago comparable -- but that could happen frequently in the weeks ahead, given January 2009's relatively low average spending level ($64 per day). Throughout 2009, Gallup's weekly spending estimates were down significantly from 2008, likely reflecting a "new normal" era of consumer spending. In 2010, spending might be expected to match or even exceed last year's "new normal" spending comparisons. While an unusual lag in the "paycheck effect" (having to do with New Year's falling on a Friday) might have influenced last week's spending increase, spending in early January 2010 seems to be at least matching last year's "new normal" -- which is good news for the economic outlook, considering that the economy continues to lose jobs.
Economic Confidence leveled off last week, but the last two weeks have been among the most positive of the last two years. Gallup's Economic Confidence Index was at -22 -- essentially the same as the -20 of the prior week. Economic confidence is 5 points better than it was during the month of December (-27) and is up 34 points from the same week a year ago (-56). Forty-one percent of Americans say the economy is "getting better" while 53% say it is "getting worse."At the same time, 44% rate the economy "poor" and 12% rate it "excellent" or "good." Despite the continuing lack of job growth, Americans remain at their most optimistic about the U.S. economy since the recession began two years ago.
Job Creation was unchanged last week, as U.S. workers' perceptions of job-market conditions remain similar to those of the past several months. Gallup's Job Creation Index was at +1 -- the same as the prior week and nearly matching the +2 of a month ago. As was the case during the prior week, 24% of employees last week said their companies are hiring while 23% said their companies are letting people go. Gallup's job creation data confirm what has become common knowledge in the job market -- layoffs are down but hiring has not improved. The percentage of companies letting people go is currently running four points below the year-ago rate (27%) while the rate of hiring (24%) has not improved.
What to Watch For
Gallup's behavior-based data suggest that while job-market conditions are not in a virtual free-fall as they were a year ago, they remain bleak after two years of recession. Although the unemployment rate remained at 10.0% in December, it would have been considerably higher if the work force (the number of people having a job or seeking work) had not plunged by 661,000. The lack of job creation has people giving up and leaving the labor market at a surprising rate -- and suggests that once job creation picks up again, the return to the market of those not currently looking for work will keep the unemployment rate in the double digits for the remainder of 2010.
As a result, it should not be surprising that lawmakers in Washington, D.C., will try to make creating jobs their political focus this year. On Friday, President Obama held a press conference focused on creating new energy jobs as part of the administration's "pivot" on jobs -- although it was somewhat muted by the morning's bad unemployment news. On Sunday, Christina Romer, the head of the White House Council of Economic Advisers, said the administration will continue to pursue measures such as tax credits for business and infrastructure spending to create jobs. Given the November elections, there is no doubt that similar sentiments will become louder on Capitol Hill.
While increased job creation is essential to a robust increase in consumer spending, Gallup's data suggest spending has stabilized at the "new normal" level seen in 2009 and has the potential to exceed it on a regular basis in the month ahead. Consumer spending was up in December from new normal levels, and last week's uptick could be the start of at least a modest improvement going forward.
On the other hand, one reason spending may be slightly higher this January is today's much higher gas prices -- up about $1 per gallon compared to this time a year ago. Further, the Federal Reserve reports that consumer credit fell a record $17.5 billion in November -- far exceeding the consensus estimates. Although consumers may have drawn down less on their use of credit during the Christmas holidays, the Fed report is a clear indication that consumer deleveraging is not ending.
While it is hard to see how consumer spending can improve significantly given the current job situation, upper-income Americans have enough discretionary income that they could increase their spending, particularly given the surge in the stock market. And the increased economic optimism necessary, if not sufficient, for these consumers to feel better about spending may be present as reflected by the highest levels of economic confidence Gallup has recorded in two years. Gallup's Economic Confidence Index for early January shows an increase over December, and this suggests that the Reuters/University of Michigan Consumer Sentiment Index, to be released Friday, should also increase.
Regardless, immediate-term changes in jobs, consumer spending, and economic confidence will all be key in determining both the direction and sustainability of the economy in the months ahead. And Gallup's indexes will provide daily monitoring as 2010 unfolds.
Learn more about Gallup's economic measures.
For Gallup Daily tracking, Gallup interviews approximately 1,000 national adults, aged 18 and older, each day. The Gallup consumer perceptions of the economy and consumer spending results are based on random half-samples of approximately 500 national adults, aged 18 and older, each day. The Gallup job creation and job loss results are based on a random half sample of approximately 500 current full- and part-time employees each day. Results from the week of Jan. 4-10, 2010, are based on telephone interviews with 3,429 adults for the consumer perceptions and spending questions. For these results, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points. Results for the job creation and job loss questions are based on interviews with 4,013 employees, with a maximum margin of error of ±3 percentage points.
Interviews are conducted with respondents on land-line telephones and cellular phones.
In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.