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Why the long face? It's the economy, stupid

Ask economists these days if the U.S. economy is gaining speed and they will, almost without exception, answer yes. Ask regular folks and you're likely to draw a sneer for even suggesting that things are on the mend.

More than half of Americans think the economy is "getting worse," while 41 percent say it's improving. according to a recent Gallup poll. What accounts for the confidence gap between experts and the rank-and-file? The answer, perhaps not surprisingly, mostly comes down to how much money people have in their pocket.

A new publication from the Organisation for Economic Co-operation Development, a forum for 34 of the world's largest economies, starkly illustrates how little progress most American families made in the decade between 2001 and 2011. Households' real net disposable income -- that is, the maximum amount people can afford to spend without having to take on debt or tap savings -- rose an average of only 2 percent per year during that period, according to the data. Things don't seem to have picked up much over the last three years, either.

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The upshot: With U.S. inflation over that 10-year span averaging 2.4 percent, Americans didn't tread water so much as slip under the waves. As of March, median family income in the U.S. was just over $53,000. That's about 6 percent lower than the $56,271 the median household brought home in December 2007, when the Great Recession officially began, according to Sentier Research.

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And it could've been worse. Under the banner of "austerity," many eurozone countries responded to the 2008 financial crisis by slashing government spending and raising taxes. The result? Economic growth stopped dead. By 2012, net income growth across the currency bloc had slumped to 1.4 percent, double the drop in the region's GDP. Growth in the eurozone as a whole remains moribund, with the union expanding a meager 0.2 percent in the first three months of the year.

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"Fiscal policy is still generally restrictive across the eurozone, credit conditions continue to be tight in many countries, unemployment remains elevated and still seems unlikely to come down markedly anytime soon while consumer purchasing power is constrained by generally limited wage growth," said Howard Archer, an economist with research firm IHS, in a client note.

Prospects in the U.S. look brighter. Although millions of Americans remain jobless, with the long-term unemployed in particular continuing to struggle, the labor market has started to expand in earnest. Consumer spending is expected to grow over the rest of the year, with demand for things like cars and health care services especially strong, according to analysts at Goldman Sachs (GS).

Other tailwinds include increased spending by businesses, a modest growth in manufacturing and -- vitally, in an economy where small businesses account for roughly two-thirds of job-creation -- signs that small business owners plan to boost hiring this year.

For household income to grow, of course, two things must happen: The labor market needs to sustain the momentum it gained in April, when employers added 288,000 jobs; and wages need to rise.

This last piece of the puzzle has proved stubbornly elusive. The average private nonfarm worker in April made $24.31 an hour, up only 1.9 percent from a year ago. For some industries, including large fast-food and retail chains, the chronically low pay is today a source of recurring labor strife.

Ed Yardeni, president and chief investment strategist for institutional investor advisory Yardeni Research, notes that wage growth remains very low, a sign the economy remains slack.

Until that slack disappears, fattening workers' paychecks and driving a stronger rebound in family income, Americans' view of the economy is likely to remain dim.

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