Is Public Opinion A Lagging Indicator?

A lot of Americans probably greeted last week's announcement that the U.S. is officially in a recession with something of a snort. Surveys show the public was willing to call this a recession long before the National Bureau of Economic Research was – and in previous recessions they were willing to keep calling it a recession long after it was officially over.

To be fair, it's not the bureau's job to match up with public perceptions. Their role is to step back and look at the data coolly, which is why they don't confirm recessions until they're well under way, and don't announce a recession's over until well after it's gone.

But no one would claim that public opinion is irrelevant to the economy. And on this topic, the public's judgments are both better- and worse-informed than the economists. Typical Americans certainly don't apply the same standards most economists use, whether it's the classic rule-of-thumb of two consecutive quarters where the economy shrinks, or the far more complicated formula used by the research bureau.

On the other hand, people have a lot of first-hand evidence that they lack in areas like science policy or international affairs. They know whether their jobs are secure, how much they're paying for gas or a loan, whether houses are selling in their neighborhood, and just how big the balances are getting on their credit cards. So the public’s perceptions are grounded in some pretty important realities. Policymakers ignore those perceptions at their peril – because if there's a split between the statistics and people's impressions, most people will rely on their own impressions.

In this most recent case, the public was a little late, but not by much. The research bureau says the recession started in December 2007. In January, 45 percent (a pretty high figure) told the Gallup poll the country was in a recession or depression. By March that was up to 75 percent, and earlier this month it was up to nine in 10.

The more intriguing point, however, is that in previous recessions, majorities of the public continue to believe the recession is going on after it's "officially" over.

For example, the last recession officially lasted from March to November 2001. But the CNN/USA Today/Gallup poll showed that half of Americans (52 percent) thought the recession was still going on a year later, in November 2002.

This pattern was even stronger in the recession before that, which ran from July 1990 to March 1991. At that point, 81 percent of Americans told the CNN/USA Today/Gallup poll that the nation was in recession. More importantly, just as many believed it in September 1992, a view that had no small impact on the re-election prospects for then-President George H.W. Bush. (The historical data isn't available easily online, but the Roper Center database has it all.)

There are a lot of reasons for this. One is that unemployment is one of the most important economic issues for the public, and yet it's also what economists call a "lagging indicator," one of the last parts of the economy to recover after a recession. Another is that it often takes time for public perceptions to catch up with social trends.

This is already one of the longer recessions since World War II, and most economists say it's going to go on for a while yet. If history is any guide, the public's view of the economy may be the biggest lagging indicator of all.