Why these good times feel so bad

By Jim Jubak

Things are pretty good.

Economic growth rebounded to 3.5% in the fourth quarter of 2006. The unemployment rate is a relatively low 4.6% and the economy created 111,000 new jobs in January -- not great, but decent. Core inflation is subdued at 2.6%, and inflationary pressures in the pipeline (as measured by the Producer Price Index) have dropped to just 2.2% from 2.8% in July 2005, a high for the decade.

And, of course, stocks are in the midst of a historic bull market run. Stocks have now racked up 47 straight months without a 10% correction, according to Jim Stack of Investech.

So why don't we feel better about the economy? In my e-mails, walking the halls of the recently concluded World Money Show in Orlando, listening to radio and TV call-in shows, and reading blogs and message boards, I find a high level of anxiety and concern. Many of us feel that somehow we're off course. That things aren't working out as we'd believed they would. That the future is more uncertain than we'd hoped.

It's hard to appreciate the 'net'

We do we feel so bad when things are so good?

I've got a theory I'd like to try out on my readers. It's not original by any means. It was suggested by Robert McTeer, former president of the Federal Reserve Bank of Dallas, in a speech at the World Money Show. I got to follow up the idea with McTeer in an interview after his speech. (You can watch the entire video here.) And I'm going to try to take the idea further in this column.

In essence, the idea boils down to this: Whether it's the job or stock markets, the official numbers report a "net" figure -- the final plus or minus after all the messy adding and subtracting is done. But we live our lives in that messy world of the gross numbers before the final calculations. The reality that we experience is in the gross and not in the net numbers.

That's a little abstract, so let me give you the example that McTeer, currently a distinguished fellow at the National Center for Policy Analysis, used in his speech.

We live in the churn

The Bureau of Labor Statistics, McTeer noted, reports job gains or losses once a month. For January, for instance, they reported that the U.S. economy had gained 111,000 jobs.

That's a net number, and as such, it's very neat and clean. But it represents a much messier set of gross numbers. In January, about 2.5 million people lost their jobs in the national economy, McTeer said. At the same time, 2.6 million people found jobs. That churn of as many as 5 million people -- probably less, since some who lost jobs also found jobs in January -- is the world in which we all live. And it's a lot messier and more anxiety-producing than the net result: Economy adds 110,000 jobs.

I'd extend McTeer's point to other realms of economic experience. We feel inflation not in the net world -- core inflation measured by the Consumer Price Index is running at an annual rate of 2.5% -- but in the gross world. The way we feel about inflation isn't a result of a mental netting out that says, "Oh, my bill from visiting the doctor is up 6%, but the cost of a computer is down 3.5%, so inflation is just 2.5%." No, we feel the gross pain of paying that 6% increase in the doctor's bill. And the drop in the price of a computer doesn't make us feel better when we're writing the larger check to our doctor.

I think this applies to the stock market as well. In the net world, the widely reported Dow Jones Industrial Average ($INDU) is up 16% for the 12 months that ended on Feb. 13, 2007. But we don't invest in the net world. As investors, we experience the gross world. And in that world, we're aware of all the stocks we didn't buy that soared. Did you catch General Motors (GM, news, msgs), up 72% in this period, or AT&T (T, news, msgs), up 40% over the last 12 months? I didn't. And we know the ones that we did buy that went nowhere, such as Intel (INTC, news, msgs), up 1%, or worse, Dell (DELL, news, msgs), down 25%.

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