The Economy: Why It Feels So Bad

CNN's Ali Velshi and Erica Fink take a long, hard look at five key measures of the economy to see how things really are out there and if your economic fears and concerns are justified.

Measuring the economy might be a science, but what makes the economy tick isn't.

The U.S. economy, more so than other worldwide economies, is largely based on how investors and, ultimately, consumers, feel. Typically, we measure economic strength or weakness using the GDP, or Gross Domestic Product, which is historically thought of as the broadest measure of economic activity.

But, while GDP may be a good measure of the whole economy (and it may not be, but that's another story), we wanted to take the temperature of the things that matter to you, and how you feel. How you feel affects how you spend, and that's what really matters in this economy.

We've taken a long, hard look at five measures of the economy that reflect how things really are out there, to see if your fears and concerns are justified. The measures we chose are those which we "touch" on a daily basis.

We charted them on a scale of 0-to-10: 0 being the worst that each of them have been since 1980; 10 being the best.

We decided to make 1980 our starting point because experts agree that the economy before then was so different from what it is now that it would be like comparing apples and oranges.

Here's what we found about how the economy is affecting you, via jobs, personal income, personal savings, industrial production and home prices.

Jobs

According to the Department of Labor, America has lost 760,000 jobs this year - almost 160,000 of them in September alone, before the worst of the financial crisis set in.

Despite that, the nation's unemployment rate is a relatively low 6.1%.

To put that into perspective, consider that during the Great Depression, unemployment reached 24%. During the last oil-fueled recession, in April 1976, unemployment hit 9%.

The methodology for calculating unemployment has been the same the past 28 years, but the composition of the job market has changed substantially over that time.

When things are good, like they were in the tech boom, unemployment is low. Indeed, the lowest unemployment rate we've seen since 1980 was in April of 2000, when it stood at 3.8%.

When things are bad, as they are in a recession, unemployment is high. The highest unemployment rate since 1980 was 10.8%, in November 1982.

Putting everything on a 10-point scale, if you set 3.9% unemployment equal to ten (the absolute best on our timeline) and 10.8% unemployment equal to zero (the absolute worst), where are we now?

Jobs: 6.8

Personal Income

Simply having a job is a start, but if your wages don't keep pace with inflation, you "feel" that, too.

This generation is not making as much money as its fathers were, according to the Pew Charitable Trusts' Economic Mobility Project. Pew compared the income of men in their 30s to that of men in the same age group 30 years earlier. The organization figures this is a solid measure because the percentage of men in the work force has remained relatively steady over the last generation - unlike women, whose working numbers and wages have increased.

Pew found that salaries for men in their 30s went up five percent from 1964 to 1994. But looking at the period 1974 to 2004, salaries actually went down 12 percent, from $40,210 to $35,010 (in inflation-adjusted dollars).

In fact, income was actually on a bit of a downswing at the start of the 1980s, but was still higher than at any other point in recent history. In 1980, the average income for a man in his 30s was $39,109; today, Pew estimates it is $34,676 (again, in inflation-adjusted dollars).

If it is any consolation, 2008 is not the low point in our survey; in 1993, the average man in his 30s was making $32,599 per year.

If an average income of $32,599 is set equal to zero, and $39,109 is set equal to ten, 2008 is at a relatively low point in the spectrum.

Personal Income: 3.2

Personal Savings

Feeling rich also comes from how much money you have available to you. Personal savings, measured by the Department of Commerce, is the amount of money you hold onto when all your bills are paid. It's stated as the amount of money saved as a percentage of disposable personal income.

In September, Americans saved an average of 1% of their personal income, down from 1.9% the month before. In fact, the personal savings rate has been on a steady decline since May, when it was at five percent - an unusually high level for Americans, possibly caused by the government's distribution of stimulus checks. Overall, the personal savings rate in the third quarter of 2008 was 1.3%.

The personal savings rate goes down, or can even become negative, when you borrow money to pay personal bills - because you are incurring more debt relative to your income. Personal savings was negative in the third quarter of 2005, when the rate went down to -0.7%. That's the lowest it's been in the last 28 years.

On the other end of our scale, people were banking the biggest chunks of their income in 1981, 12.2%.

So, if we make -0.7% equal to zero and 12.2% equal to 10, personal savings in the third quarter of 2008 scores a...

Personal Savings: 1.6

Industrial Production

Industrial Production (IP) is another measure of the economy that you can see and feel - not directly in your pocket; but indirectly, when you're out shopping in stores. It measures the output of tangible goods - a car is made, a gallon of oil is produced - showing changes over time.

Industrial Production may drop when circumstances get in the way of production. For example, the Federal Reserve reported that shutdowns in the Gulf of Mexico resulting from Hurricanes Gustav and Ike shut down a lot of oil- and gas-related production in September.

The disastrous effects of the hurricanes crippled production, resulting in an IP drop of 2.8%, the biggest month-to-month drop in 34 years. Moreover, September's dive followed a decline of 1.1 percent in August, caused by vast cuts in the production of cars and car parts.

Overall, the third quarter of 2008 saw a decline of 6%, nearly twice as big a drop as the quarter before.

In brighter times, like the last few months of 1997 when most industry groups were growing, production is high. The fourth quarter of 1997 saw the strongest increase in output in recent history: a quarterly increase of 10.7%.

Production levels were at their worst during the recessionary period of the early 1990s. Similar to the situation last month, a key contributor to the production decline was the automotive industry: In the first quarter of 1991, automakers cut back production to levels from a decade earlier, to even out inventories with sales. Production for that period was down 7.5%.

Returning to our 10-point scale, if we set -7.5% IP equal to 0, and 10.7% IP equal to 10, we're now at ...

Industrial Production: .82

Home Prices

At the end of the second quarter of 2008, home prices were down 4.8% from the same period a year before, according to the Office of Federal Housing Enterprise Oversight.

The current drop of 4.8% is actually the worst we have experienced in this generation. But just three years ago, during the housing boom of 2006, home appreciation grew at its fastest rate in the last 28 years. In the second and third quarters of 2005, just as prices started to take off, home prices were up 9.7% from the year before.

Pretty obviously, if a 4.8% decline in home prices is equal to 0 and 9.7% is equal to 10, we're now at the very bottom of the spectrum.

Home Prices: 0

The Numbers Tell It

Here's where we rank currently on jobs, personal income, personal savings, industrial production and home prices.

On only one measure does the U.S. now rate above the halfway point on the scale.

No surprise we're feeling bad.