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6 Reasons To Feel Optimistic About the Economy

Last week was Woodstock for pessimists. If you were already feeling glum over the fact that filling up your gas tank costs 25 percent more than it did at the start of the year, or that the trip to the grocery store eats up nearly 5 percent more of your take-home pay, the news that Standard & Poor's put the United States' AAA-rating on probation was just one more reason to feel discouraged. Indeed, a New York Times/CBS News poll released last week confirmed that the nation's mood is at its gloomiest reading in two years. The Wall Street Journal pretty much said the same thing, while analyzing the recent run-up in gold prices to more than $1,500 an ounce. Gold prices don't soar when we're feeling good.

To be sure, there is plenty to worry about. Three years after the financial crisis began, it's hard to get that glass half full feeling when the headlines keep telling us the recovery is painfully slow, the state of our federal financial ledger is ominous, and the response of Washington is dysfunction, not leadership. But maybe we're also just so used to bad news, it's what we have come to expect as the new normal.

Behavioral finance has taught us that we tend to look for and weigh more heavily information that backs up what we want to be true, or what we think is true; what's known as confirmation bias. In a way, we may be so used to hearing gloom and doom that we're now looking for more data points to justify those negative feelings, when in fact there are some clear signals that the economy is moving in the right direction. Some less-bad news to consider:

1. Mass layoffs are subsiding. The Bureau of Labor Statistics reported last week that mass firings -- defined as layoffs of 50 or more workers by one employer -- in March were the lowest level since late 2007.

2. Job growth is accelerating. Last month we added 216,000 jobs, the month before that 194,000. Yes, at that pace it is going to take a very long time to get the 14 million unemployed back to work, but those numbers are a lot better than the monthly gains we saw through most of 2010, which were in part artificially boosted by temporary hiring for the 2010 Census survey.

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3. Companies are feeling friskier. In a recent survey of chief financial officers, half reported they expect their firm to raise its prices or fees over the next six months. That's more than double the percent who said they were considering price hikes last spring. Companies don't (or can't) raise prices when the economy is weak. While not so great for consumers, it's good news when more firms are feeling secure enough to pass on a price hike. That survey also echoes the tone of the Federal Reserve's latest beige book report that also found more businesses contemplating price hikes.

Moreover, after holding onto its purse strings so hard it nearly cut off circulation in its fingers, big business is beginning to spend a bit. The strong earnings reported by Intel and IBM last week are one signal IT spending is on the rise. In the crawl-before-you-walk way of looking at things, companies investing internally precedes moving to that other signal of recovery: actual hiring. And even on that front, we seem to at least be headed in the right direction. In the same CFO survey noted above, nearly 40 percent said their firm expects to increase headcount in the next six months. OK, that's not screaming a hot job market, but it's worth noting that in the spring of 2009, less than 20 percent of companies were looking to hire, while a year ago that figure was just 28 percent.

4. Banks are becoming more willing to lend (at least to businesses). In the most recent Federal Reserve survey of bank loan officers, none reported that they were actually tightening their lending standards for commercial loans, and about 15 to 20 percent said they were actually beginning to ease up on some of their loan requirements, a good sign for business. That said, there's been no easing of lending requirements for households.

5. The Fed is having a serious debate about when to tighten. It wasn't so long ago that deflation and depression were part of the conversation, and monetary easing by the Federal Reserve was the central gambit being considered to keep both from occurring. The fact that the debate has clearly shifted to when the Fed will begin to reverse course is another signal the economy is becoming more entrenched in a recovery/growth mode. And last week, the Conference Board reported a continued uptick in its index of economic indicators.

6. Housing is showing signs of life. As MoneyWatch's Ilyce Glink reported last week, there are in facts some glimmers of recovery in the moribund housing market. Granted, the huge inventory of homes on the market -- and the shadow inventory -- makes this a very deep hole to dig out of. But this is all about looking for what the trend may be going forward. If we're actually moving toward a more stable housing market, albeit slowly, that's indeed progress.



To be sure, none of these bright spots are exactly shining at high-beam intensity. "Fragile" is the necessary modifier to any mention of an economic recovery. But at the same time, with pessimism having become so entrenched, these positive data points suggest the conventional wisdom could be a lagging, not a leading, indicator.



Photo courtesy Flickr user Ahmad.Hammoud
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