Economy recovers faster than people’s faith in it

By Tom Petruno Los Angeles Times

When psychologists and academics study how people come to decisions about investing, they focus in part on the risks of “belief perseverance.”

In short, belief perseverance holds that once we form an opinion about something, we’re reluctant to abandon that view even when the facts tell us we’re wrong.

That can lead to missed opportunities — or worse.

For some investors, the facts of financial markets’ performance over the last year are inconveniently at odds with what they want to believe.

It is a fact that nearly every stock market on the planet has risen dramatically since March 2009. Ditto for most bond markets. The average U.S. stock mutual fund is up 45 percent; the average bond fund is up nearly 20 percent.

Unless you owned nothing but long-term government bonds, it would have been virtually impossible to lose money in the markets over the past year.

Yet when a Bloomberg News poll this month asked 1,002 Americans nationwide how the value of their investments had fared compared with a year earlier, just 31 percent said their portfolio was better off.

An additional 22 percent said the value of their investments was the same, while 46 percent described their holdings as either “a lot worse” or “a little worse” than a year earlier.

It’s possible that Bloomberg found the nation’s 1,002 unluckiest investors. It’s also possible that the phrasing of the question somehow confused the survey respondents.

But I suspect something else is at work: The markets are up, yet so many people simply don’t believe that the rebound is real — because they don’t believe that the economic recovery is real. So they still regard their investments as losers or laggards, even as stock market indexes have been hitting 17-month highs.

Sure enough, when the Bloomberg survey asked respondents to describe the economy today compared with a year ago, 57 percent said it was either a lot worse or a little worse.

Just as all politics is local, so too is economics. Many Americans understandably perceive no real improvement in their lives despite what the overall numbers tell us about, say, manufacturing activity, retail sales and home prices over the last year.

What has been lacking is job growth. And even though the labor market always is the last thing to recover after a recession, that is consolation only to economists — not to the masses desperate for work.

Soon, though, the country may find that the employment situation finally has turned, at least by the government’s official monthly numbers of net job gains or losses.

On Friday, the Bureau of Labor Statistics released its initial estimate of March employment trends. The report showed a net gain of 162,000 jobs. The total was inflated in part by the hiring of U.S. Census workers, but the March report nonetheless is expected to be the inflection point for the job market — the beginning of a sustained upturn after the horrendous losses of the last two years.

We are, of course, climbing out of an extraordinarily deep hole. Even under the best of circumstances, job growth is likely to be slow for years. Many people in their 50s and early 60s who are out of work will stay that way, maybe for the rest of their lives.

Yet for millions of Americans who have remained employed, a succession of headlines about new job growth should build confidence that the worst is, in fact, over. And if you can stop worrying about losing your job, you should feel better about making decisions that you’ve postponed — replacing your aging car or computer, for example. Or buying a house. Or having a child.

This is the way economic recoveries are supposed to unfold: confidence rises, begetting more confidence.

Could this time be different? Maybe. The severity of the recession, the damage wrought by the housing bubble and the credit-market crash, and the disgust Americans feel toward bankers, regulators and politicians, have encouraged the sense that things will never get better.