Our Surprisingly Resilient Goldilocks Economy

The headlines recently have been less than encouraging: continuing trouble in Iraq, turmoil in the stock market, and dire warnings about something most people know little about — the subprime mortgage market — are enough to give anyone cause for concern.

The current economic slowdown has even rekindled talk of a possible recession. In fact, some have suggested that former Federal Reserve Chairman Alan Greenspan's recent remark to that effect (which he quickly retracted) may have contributed to the stock sell-off. So where exactly do we stand?

Although it's counterintuitive to today's headlines, the country and the economy seem to be in much better shape than conventional wisdom would suggest. How is this possible? It has many economists scratching their heads, but recent statistics don't lie. The economy is proving to be remarkably resilient, and small businesses are one of the barometers that support the trend.

A recent National Federation of Independent Business (NFIB) survey of small business attitudes this month showed only a slight one-point decline from its reading in February. While the percentage of business owners who expect higher sales in the coming months declined, as did the percentage of those who expect to hire, three of the 10 index components rose. More owners said it is a good time to expand, a growing number said they have been able to raise prices (a sign of strong demand), and an increased number said they plan to expand inventory.

Given everything that's happened, that's remarkable, especially when you consider that the NFIB's surveys generally tend to be less optimistic than other surveys. I spoke recently with Karen Kerrigan, who heads the Small Business & Entrepreneurship Council in Washington, and her observations were similar to my own.

"You try to get a sense of what reality is because you see the GDP numbers and then you hear the doom and gloom, and when we go out to members in various states, you hear that business is really good," she says. "The only things that are holding them back are some of the typical things like [lack of] a skilled workforce and government-imposed costs. So I definitely see a realistic optimism."

And that view doesn't end at the corner store. Small business owners are obviously taking their cue from consumers. Last month, their confidence rose to a two-and-a-half-year high, according to the monthly Ipsos/RBC Cash survey.

Since consumer spending plays a major role in driving the economy, the upbeat mode is a good sign. In fact, some economists are revising their growth forecasts upward for the first half of the year, and the Fed now seems less likely to cut interest rates this summer.

Consumers who were surveyed pegged their optimism to the nation's low unemployment rate and their own job prospects. That's another remarkable characteristic of the current economy.

Despite the economic slowdown, the unemployment rate declined to 4.5 percent last month after rising to 4.6 percent in January. Statistically, economists consider that full employment. The trend is reflected in the real wages for non-management workers. They are up 4.1 percent over a year ago, according to the Labor Department.

Of course, the low jobless rate isn't the best news for small businesses, which often are at a disadvantage in the competition for skilled workers. A hiring crunch has existed in most parts of the country for the past two years, and that seems unlikely to ease anytime soon.

And that's not to say there aren't other concerns to worry about. Another recent survey showed a rise in consumer concern about the nation's direction, looking six months ahead. We definitely live in uncertain times, and our economy could change quickly given the right triggering events. A sudden, sharp spike in gas prices, increased turmoil in overseas stock markets, or more fallout in the housing market from the subprime mortgage debacle all pose risks.

So are we truly in a "Goldilocks" economy, where growth is steady — neither too hot nor too cold — and inflation is under control? Only Goldilocks may know for sure. But one thing is certain — we are at a point in time where President Franklin D. Roosevelt's words come to mind: "The only thing we have to fear is fear itself."

Ultimately, the strength of our economy is based on our own resilience, and we should expect some bumpy times ahead. It's important to keep in mind that any prophecy about doom and gloom will certainly come true if we make it self-fulfilling.