Yesterday, Gallup released a poll analysis titled “Views on Economy Take Slight Downturn.” The article opened, ominously, “Americans’ views of the economy, already decidedly negative, slid back to levels observed last fall in the wake of Hurricane Katrina.”
Indeed, the results indicate this. According to the poll (conducted May 8–11), when asked to “rate the economic conditions of this country today,” 4 percent rated the economy “excellent” and 25 percent called it “good,” while 45 percent declared it “only fair” and 25 percent called it “poor.” More alarming, however, is their negative outlook: 68 percent believe the economy is getting worse, according to Gallup, and 26 percent believe it is getting better. The outlook has been worsening fairly steadily since winter 2005.
On what information are respondents basing their answers? Gallup writes, “Gas prices probably have a lot to do with Americans’ current dour views of the economy.” That sounds dead-on to me. In fact, according to the poll, gas prices seemed to be respondents’ only excuse for pessimism. Forty-two percent of respondents declared that now is a “good time to find a quality job”—the highest since Gallup began asking this question in 2001. Those in the best position to comment on the strength of the current job market—those currently employed or unemployed but seeking employment—are “even more positive about jobs”; 46 percent say that “now is a good time to find a quality job.” As a graduating student, I would say that this confirms the anecdotal evidence I have personally seen.
As an experiment, I went to Reuters to see what articles they had published on May 17 and 18. Here is what I found (starting with the most recent): “Shoppers cut back as gas prices rise: survey,” “High Fuel Prices to Curb U.S. Holiday Travel: AAA,” “U.S. Gov’t Says Gasoline Cost Won’t Crimp Vacations,” “Vacations Will Go on Despite Gasoline Cost: EIA.” A New York Times headline: “SATURDAY INTERVIEW: Renting Cars While Gas is Soaring.” From CNN: “Expensive Gasoline=Belt-Tightening.” From USA Today: “Gas Prices Drive Down Demand.” From Phoenix Business Journal: “Survey: Gas Prices Starting to Put the Crimp on Vacation Plan[s].” From the Pittsburgh Post Gazette: “Expensive Gas Has Vacationers, Businesses Changing Behavior.” From BusinessWeek: “Take Control of Rising Gas Prices: Don’t Let your Money Evaporate.”
It’s hardly surprising, then, that respondents have latched onto the price of gas as an economic barometer.
Of course, the price of oil is strongly related to the strength of the economy. Indeed, all the experts at predicting the future behavior of the economy (insofar as that is possible) look closely at oil prices. But gas prices are a cause, not an effect, of a sluggish economy.
Regardless poll respondents—and consumers—are hardly experts. The opinions and predictions of the average Joe are strongly influenced by what he reads in the paper and what he personally experiences. Joe has a hard time gauging the Consumer Price Index himself, but he is intimately acquainted with gas prices. He takes note each time he heads to the pump, probably more frequently when gas prices are high, as they are now.
The media love publishing negative stories about the economy, especially when a Republican is president. In particular, they love publishing stories about the negative effect of high gas prices on the economy. Journalists do not understand why the economy does what it does, nor are they particularly interested in learning. Your average journalist is as lazy as the next guy and when confronted with a deadline is wont to resort to a standby story. A standby story is a standard article which can be cooked up from a formula and reheated as many times as necessary.
The gas prices story looks a bit like this: Say that the price of gasoline is high. State what the price is. Find some random people and ask them what they think about the high price of gasoline. (Find anyone. Everyone has an opinion about gas prices these days. See how easy this is?) Reprint an expert quote. Ask some ominous rhetorical questions, such as: Will gas prices make vacationers stay home for the holidays? and What effect will high gas prices have on consumer confidence?
Obviously the price of oil has a substantial effect on the economy. However, I worry that the flurry of gas price articles has created (or at least exacerbated) Joe’s tendency to become immediately pessimistic as soon as he experiences a short-term price increase. That pessimism could, in turn, cause an economic downturn.
I have a message for Joe: The strength of the job market is a better indicator of how the economy is doing right now than the price of gas. More people than ever before are saying that now is a “good time to find a job,” all right? The pessimism can wait.
