How We’re Doing: Uncertainty Ahead of the Midterms

Index #6: Last Five Quarters

Two days before voters go to the polls, uncertainty—both economic and political —remains the watchword. The strength of the recovery is in question, as the economic growth spurt of late 2009 and early 2010 appears to have given way to a slog. In the sixth “How We’re Doing” Index, a team of Brookings experts has looked at the past five quarters to assess data that underpin the national gloom. With midterm elections historically hard on the president’s party when voters are worried about economic circumstances, the Republican Party may regain control of Congress—but on major issues of policy, uncertainty is likely to linger.  <not-mobile message=””>  Continue reading below chart » </not-mobile>

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“General Welfare”

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

U.S. GDP growth, percent change, annual 1.6 5.0 3.7 1.7 2.0
Unemployment rate 9.6 10.0 9.7 9.7 9.6
Underemployment rate 16.7 17.3 16.7 16.7 16.8
Total non-farm employment percent change, annual -3.1 -1.3 0.2 2.2 -0.3
Inflation rate percent change, annual 3.7 2.6 1.5 -0.7 1.5
Consumer spending, percent change, annual 2.0 0.9 1.9 2.2 2.6
Dow Jones Industrial Average (end of quarter) 9,712 10,428 10,857 9,774 10,788
Thomson-Reuters/University of Michigan Surveys of Consumers 68.4 70.2 73.9 73.9 68.3
National Federation of Independent Business, Small Business Optimism Index 88.0 88.5 88.0 90.6 88.6
National Association of Home Builders/Wells Fargo Housing Market Index 18.0 16.7 15.7 19.0 13.3
S&P/Case-Shiller Home Price Composite 10 Index (data from September 2010 not available) 156.0 157.4 158.7 160.3 160.7
Months’ Supply of New Homes 7.8 7.6 7.7 7.9 8.5
Interest rate on 30-year fixed mortgage (end of quarter) 5.1 4.9 5.0 4.7 4.4
States experiencing increases in the unemployment rate 32 28 32 7 23
States experiencing increases in total employment 2 14 37 40 13
Total non-farm payroll employment, (quarter-to-quarter) percent change, annual
… in the Cleveland Metro area -4.6 -2.4 1.0 4.7 N/A
… in the Las Vegas Metro area -7.5 -1.5 -4.6 -1.0 N/A
… in the D.C. Metro area -1.5 -1.4 0.7 5.0 N/A

“Common Defense”

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

U.S. troop fatalities for the war in Iraq 25 23 17 22 14
U.S. troop fatalities for the war in Afghanistan (does not include the death of 5 CIA operatives in December 2009) 136 90 88 114 162

“Blessings of Liberty”

2009 Q3

2009 Q4

2010 Q1

2010 Q2

2010 Q3

President’s approval rating 54% 51% 49% 48% 45%
Partisan gap 68% 67% 68% 69% 68%
Approval rating of Congress 31% 24% 19% 21% 19%
“Satisfied with the way things are” 32% 25% 22% 25% 20%
“Feel things in this country are generally going in the right direction” 39% 37% 35% 33% 33%

See data sources »
Third-quarter data show that economic growth remained tepid for the second consecutive quarter. Nearly one in 10 workers is unemployed, and the 17 percent underemployment rate – which includes marginally attached workers and people employed part time for economic reasons – remains near its record high from last October.

The housing sector, which has often led the way out of past downturns, continues to be troubled. A series of government interventions over the past two years has helped modestly turn around home prices after a 33 percent decline, but a glut of homes persists even after two years of historically low housing construction. Millions of people have lost their homes to foreclosure the past few years, and a further drop in house prices could put even more borrowers underwater and at risk of losing their homes.

Meanwhile, confidence has slid further: Consumer sentiment declined in the third quarter to its lowest level in more than a year. The National Federation of Independent Business’s Index of Small Business Optimism was down. The National Association of Home Builders’ measure of builder confidence was just a tad above its historic lows of early 2009.

What do these measures suggest? First, that consumers and businesses share the view of economic forecasters that the prospects for a rapid recovery are dim. A high degree of uncertainty surrounds both our economic future and some issues of policy. Congress and the administration have not resolved whether, or to what degree, to allow the Bush tax cuts to expire as scheduled by year’s end. The nation lacks long-term plans to address its deep debt. There has been little clarity on how or if the government will take on energy supply, climate change and immigration.

On issues of monetary policy, Federal Reserve leaders are talking about resuming their efforts to stimulate the economy by purchasing Treasury securities, but experts in and outside government continue to debate the size of the benefits and how to weigh them against the potential risks of inflation.

Political and governing concerns are driving uncertainty yet higher. Less than a third of voters felt the economic stimulus money hit the mark, an October Washington Post poll found, and 68 percent believed federal dollars were wasted. A Newsweek poll this month on the psychology of voter anger found that 68 percent are dissatisfied with the way things are going in the United States; economic conditions, not enough good-paying jobs, and low moral and ethical standards in particular provoked
anger. Neither party generates much confidence in its ability to address problems such as health care, energy or housing.

Although Republicans are poised to pick up a large number of congressional seats, gridlock is the safest prediction for the post-election Congress. Whichever party ends up controlling the House and the Senate will have narrow majorities, making governing a challenge. Other aspects of our highly polarized political environment strain chances for solid bargaining and negotiation.

The public’s lack of confidence bears importantly on how the future unfolds. If people feel uncertain about the economy and political leaders’ abilities, consumers may hold back on spending and businesses may delay hiring and investment. This combination inhibits economic growth and perpetuates dismal economic conditions. The midterm campaigns and third-quarter data underscore the difficulty of generating a cycle of growth and confidence in the face of national doubts and anxiety.

See also:
» State of Metropolitan America—portraying the demographic and social trends that shape our nation’s metropolitan areas
» GovWatch—tracking the progress and performance of our institutions in economic recovery
» MetroMonitor—a barometer of the health of America’s 100 largest metropolitan economies


GDP growth:
U.S. Bureau of Economic Analysis, NIPA Table 1.1.1, Retrieved October 29, 2010

Unemployment rate:
U.S. Bureau of Labor Statistics, Current Population Survey Unemployment Data, Retrieved October 18, 2010

Underemployment rate:
U.S. Bureau of Labor Statistics, Current Population Survey U6 SA Data, Retrieved October 28, 2010

Inflation rate:
U.S. Bureau of Labor Statistics, Consumer Price Index, All Urban Consumers, Seasonally Adjusted, Retrieved October 18, 2010.

Consumer spending:
U.S. Bureau of Economic Analysis, NIPA Table 2.3.1., October 29, 2010

Dow Jones Industrial Average:
Yahoo! Finance

Reuters/University of Michigan Surveys of Consumers:
St Louis Federal Reserve, University of Michigan: Consumer Sentiment, Retrieved October 18, 2010

NFIB Small Business Optimism Index:
National Federation of Independent Business; Small Business Economic Trends October 2010

NAHB/Wells Fargo Housing Market Index:
National Association of Home Builders; Retrieved October 22, 2010

S&P/Case-Shiller Home Price Composite 10 Index:
Standard and Poors; S&P/Case-Shiller Home Price Composite 10 Index; Retrieved October 28, 2010–p-us—-

Months’ Supply of New Homes:
Census Bureau, New Residential Sales; SA Months Supply at Current Rate; Retrieved October 29, 2010

Interest rate on 30-year fixed rate mortgage:
Freddie Mac, Primary Mortgage Market Survey, “Monthly Average Commitment Rate and Points on 30-year Fixed Rate Mortgages since 1971.”

States Experiencing Increases in the Unemployment Rate:
Bureau of Labor Statistics, Local Area Unemployment Statistics; Retrieved October 29, 2010

States Experiencing Increases in Total Employment:
Bureau of Labor Statistics, Current Employment Statistics; Retrieved October 29, 2010

Payroll employment in the D.C. and Las Vegas metro areas:
Moody’s Economy; Retrieved October 29, 2010

U.S. War Fatalities:

The President’s Approval Rating:
The Gallup Organization. “Presidential Approval.” Gallup Poll News Service; unpublished data from the Gallup Poll . “Presidential Approval Ratings – Barack Obama.” Retrieved October 21, 2010

Partisan Gap:
The Gallup Organization. “Presidential Approval.” Gallup Poll News Service; unpublished data from the Gallup Poll. “Presidential Approval Ratings – Barack Obama.” Retrieved October 21, 2010, from The Gallup Poll

Approval rating of Congress:
The Gallup Organization. “Congress and the Public.” Retrieved October 21, 2010, from The Gallup Poll

Average percent of Americans “satisfied with the way things are”:
The Gallup Organization. “Satisfaction with the United States.” Retrieved October 21, 2010, from The Gallup Poll

Average percent of Americans who “feel things in this country are generally going in the right direction”:
CBS News/New York Times Poll. Oct. 21-26, 2010, “Do you feel things in this country are generally going in the right direction or do you feel things have pretty seriously gotten off on the wrong track?”; Retrieved October 29, 2010