Frederica Freyberg:

Lower prices at the pump can fuel consumer confidence. More money in your wallet could translate into more money to spend, especially during the holiday season. Despite a drop in the price of gas a new report this week shows that unexpectedly consumer confidence went down in November. Consumer confidence is an economic indicator which measures the degree of optimism consumers feel about the overall economy and their personal financial situation. Steve Deller, a University of Wisconsin professor in applied economics, joins us to explain why this is significant. Professor, thanks very much for being here.

Steve Deller:

Thank you for having me.

Frederica Freyberg:

Well, so again, we read that consumer confidence was at a seven-year high in October and then slipped back in November. What’s up with this?

Steve Deller:

Well, you have to realize that these indicators ebb and flow. Generally, what we’re looking for is kind of a trend. So it’s like watching the stock market. If you watch it every day, you’ll go crazy. But what you’re looking for is kind of a pattern over time. I’m not so concerned about the confidence indicator going down this time. If it goes down again next month and the month after that, then we have problems.

Frederica Freyberg:

What is, then, the overall trend?

Steve Deller:

The overall trend is up. I think what’s happening is that people are becoming more confident in their job outlook, their employment. They’re feeling more stable. They’re feeling as though there is potential for movement within the job market. But I think what’s holding people back is that we haven’t seen any wage growth. So I feel secure in my job, but I’m not seeing my wages increasing. And that can lead people to kind of hold back a little bit.

Frederica Freyberg:

So what’s responsible for kind of the weak growth in wages?

Steve Deller:

Well, it’s a couple of things. One is that businesses are trying to keep their costs down as low as possible, and that’s keeping downward pressure on wages. The second is that a lot of the job growth that we’re experiencing tend to be in the lower wage categories. A lot of personal services and jobs that generally, simply don’t pay that much.

Frederica Freyberg:

So if industries are putting downward pressure on wages and likewise potentially hiring more part-time people, is this partly why we see kind of a widening wage gap?

Steve Deller:

Yes, it is very much. There is evidence that a lot of manufacturers, as they’re coming back and hiring more, they’re actually going to temp agencies. And they’re hiring people on short term basis through temp agencies. And the reason they do that is because one, it's not making a long term commitment, they can pay lower wages, and also they don’t have to pay any benefits. So it’s a major saving for firms to go towards this lower-end labor.

Frederica Freyberg:

Now, you read all the time that the US economy is 70% consumer spending.

Steve Deller:

Yes.

Frederica Freyberg:

So if that’s true, and there is this downward pressure on wages and consumer confidence is trending up, but a little bit up and down, what does that mean for our economy?

Steve Deller:

The economy is– They just released the third quarter gross domestic product and it shows strong growth.

Frederica Freyberg:

Right.

Steve Deller:

So depending on which indicator you look at, if you look at jobs, we’re doing well, thank you. If you look at gross domestic product which is kind of the granddaddy measure, we’re doing fine, thank you very much. You look at the stock market and we’re doing fine, although lot of that has to do with foreign investors coming in because the US dollar is strong and the rest of the world economy is weak. But again, we’re not seeing wage growth.

Frederica Freyberg:

I know that the federal reserve says that, like you say, the US and the regional labor market continues to recover, but we’re still not back to normal after the recession.

Steve Deller:

That’s correct.

Frederica Freyberg:

When are we going to be back to normal?

Steve Deller:

Well, we used to talk about the 1980s and the 1990s as the Japanese lost decade, and I think that we’re kind of going to look back at this time period as kind of the lost decade. We came really close to going into another Great Depression when the Great Recession hit. I don’t think people realize how close we were to going off the edge of a cliff. And it’s caused a lot of businesses just to kind of hold back. It's caused a lot of banks to hold back, particularly with smaller business loans. When you look at where a lot of the job growth is occurring, a lot of it is occurring in the smaller businesses. It's not the big companies, it’s the smaller businesses. Banks are just being fairly conservative in lending it out, and it is working its way through ever since the Great Recession.

Frederica Freyberg:

Should we feel optimism, or like there's you know, some problem around the corner?

Steve Deller:

I think we should be optimistic. I think that we’re out of the shadows of the Great Recession. But I think this widening income gap and the lack of wage growth has been something that has been bothering this economy for a number of years. You look at where the income growth is occurring, it’s all at the top 1% or 2%. You look at the middle of the distribution or the lower end, they’re not showing any job growth, or any employment growth– wage growth.

Frederica Freyberg:

Does Wisconsin kind of follow national trends, or do we tend to lag behind or have some peculiarities that make us different?

Steve Deller:

We are fairly heavily dependent upon manufacturing, so we do tend to lag behind a little bit. But this recovery for Wisconsin has been less than robust, and not only in terms of job growth but also in terms of wage growth. So Wisconsin tends to kind of lag behind a little bit because of our dependence on manufacturing, but historically, we should be doing better now than we have been historically.

Frederica Freyberg:

All right. We leave it there. More to talk about on that, but Professor Steve Deller, thanks very much.

Steve Deller:

Thank you.