As the presidential political season approaches its climactic months, there is growing evidence that the U.S. economy is functioning far better than the headlines. At its foundations, however, the economy is showing cracks. Businesses have slowed the pace of hiring. Corporate earnings continue to decline. Uncertainty about the coming year, perhaps magnified by election rhetoric, seems to be dampening business investment. At the same time the underpinning of the economy, the U.S. consumer, seems to be clearly split about the health of his or her own household finances compared to those of the nation.

A survey by the Associated Press/NORC Center for Public Affairs Research showed that 42 percent of Americans felt the U.S. economy was in good health, while 66 percent judged their own financial condition to be strong. Behind the responses were concerns about another financial downturn, stock market volatility and especially the negative sentiments of the political trail. Only one in three respondents expressed confidence that they could quickly find employment in the event of a layoff.

The evidence of the dampening influence of the political rhetoric showed up in the disparity of responses of Democrats and Republicans. Among those identifying themselves as Republicans, only 34 percent described the economy as good, compared to 54 percent of the Democrats. The outlook was even more divided, with 38 percent of Republicans expecting the economy to deteriorate in 2016 compared to only 18 percent of Democrats.

Similar divergences existed in May between sentiment and data. Consumer confidence, as measured by the University of Michigan/Reuters and Conference Board surveys, has been in a slightly downward trend since the first quarter of 2015, yet consumer spending continues its multi-year pattern of outstripping gross domestic product (GDP). April’s retail spending jumped 1.9 percent and forecasts for the full year spending growth remain at or above four percent, even though GDP estimates for 2016 have been moderated to two percent.

Hiring had also been disconnected from sentiment until late spring. Surveys of business owners find that plans for investment have fallen off for 2016, including capital spending. Yet the pace of hiring remained brisk for a business cycle that is now in its seventh year of growth. May’s lack of job creation – employers added only 38,000 to the payrolls – was a warning sign that expansion is coming to an end, although other data reinforced the strength of the labor market. Jobless claims fell to 268,000 in late May. Even at the granular level the data is debunking myths about the health of the labor market. For example, unemployment among college grads is only 2.4 percent, compared to 5.9 percent of those with no more education than a high school diploma. The Labor Department’s data is at odds with the popular narrative that debt-burdened recent college grads aren’t finding jobs.

What is clear thus far in 2016 is that the behavior of individual businesses and consumers betrays an optimism that is not being expressed in the aggregate. Americans have gotten their finances in order and are spending, even as they express concerns about the near-term economic outlook. Businesses are hiring and investing in construction, even as business owners respond to surveys about the coming year in increasingly negative terms.

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