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Although consumer spending is up, consumer confidence is at its worst since March 2009, at the height of the recession.
David McNew/Getty Images
Consumer spending is up, and the economy is growing a bit. Unemployment is high, but at least it looks like it's not going higher. Even Wall Street likes the Greek debt deal.
But to say that the American consumer remains skeptical would be an understatement. Just ask Kim Brown, a 34-year-old kindergarten teacher from Caroline County, Md.
"Everything is going up but our pay," Brown tells NPR. "I'm not confident at all. I think things are going to get worse before they come back."
There's also Antonio Jackson, 29, a sewer worker in Washington, D.C. He says he's thankful to be working, but is worried about the possibility of layoffs.
"People are losing more jobs every day. There are a lot of homeless people on the street," he says.
Brown and Jackson put faces on the October consumer confidence figure released earlier this week. The Conference Board, a private research group, said its index of consumer sentiment was the worst since March 2009, at the height of the recession.
That sentiment stands in contrast to several numbers that offer a modicum of hope. Consumer spending for July-September was triple the level of the previous three months, helping push third-quarter GDP to 2.5 percent.
So, how do economists square Americans' deep pessimism with the ever-so-slight glimmers of optimism starting to show through in the economy?
"I think it's a case of watch what people do, not what they say," says Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh.
John Silvia, chief economist with Wells Fargo Economics, agrees.
"There is a sort of disconnect between consumer spending and consumer confidence," Silvia acknowledges. "It appears as if, yes, people are not all that confident in the future, but they are dealing with today's reality, and they are going on with their lives."
But there's something deeper going on, according to Dan Ariely, a behavioral economist at Duke University.
The numerous hits to the economy have caused consumers to basically shut down. It's something psychologists call "learned helplessness."
"If you take an animal and you give the animal shocks — punishment — in unexpected intervals, the animal gets very depressed and after awhile just lays around in the cage," he says. "Even if you put it in a new cage, it doesn't explore, it doesn't look for ways to escape."
In Ariely's scenario, the American consumer is the animal. We've been shocked repeatedly and unexpectedly — by the mortgage crisis, by the bank bailout, by losing a job. So, our confidence is shot. We've stopped exploring. We've even stopped trying to escape.
And psychology has a bit more to offer in the service of explaining consumer attitudes, says Ariely.
There's a concept called "loss aversion" — the tendency to focus more attention on our losses than our gains — that's also in play, he says. All those economic numbers that are a little better aren't doing much to boost confidence when weighed against the job we lost or the 401(k) that took a beating earlier this summer.
"People have lost a tremendous amount in this downturn," he says. "This has been a really expensive, devastating, salient lesson. It's hard to overcome that and say, 'Oh, the last few weeks have been good.' "
There's a lot of mistrust now because in the midst of the crisis, Wall Street, the banks and the government all seemed helpless, Ariely says.
"I think it would be incredibly surprising if consumer confidence tracked the current pace of the stock market," he says. "The only way we could achieve that is if we basically zapped people's brains and got them to forget everything that has happened over the past few years."
But Ben Herzon, senior economist at Macroeconomic Advisers, says he thinks that while the challenge is formidable, it won't take zapping anyone's brain.
"If unemployment was put on a meaningful downward track, I think confidence would pop up pretty quickly," he says.
Now the bad news: Herzon is forecasting 9 percent unemployment through all of next year, and for it to come down only to 8.5 percent by the end of 2013.
NPR's Giles Snyder contributed to this report.