Why does a good economy not feel that way?

WASHINGTON — The U.S. economy is strong when measured by macro-statistics, but sluggish wage growth, rising gasoline prices and interest rates, and the gloomy background music from the Iraq war are overshadowing the good economic news in the minds of most Americans.

To be sure, corporations are raking in strong profits, which are driving the stock market toward its all-time high. Unemployment is near historic lows. Even a slump in home sales in parts of the country hasn't slowed consumer spending significantly.

But when pollster Gallup recently surveyed Americans, 64 percent said the economy was getting worse. Only 33 percent described it as good, 40 percent as fair and 23 percent as poor. And that survey was taken March 13-16, before gas prices leapt more than 30 cents a gallon to a national average of $2.92.

"When we talk about consumer confidence, or rating the economy, we're talking attitudes here. And if they're down on a lot of things in America, they'll be down on that, too," said Frank Newport, editor in chief of the Gallup Poll.

Pollsters, he said, "are picking up decadelong lows" for citizen views about the White House and Congress, fueled by the unpopular war in Iraq and other issues. These views cloud feelings about the economy.

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Experts agree that U.S. economic growth exceeds historic norms. In late April, the Commerce Department reported a sizzling first-quarter annual growth rate of 4.8 percent in gross domestic product (GDP), the broadest measure of the economy. Unemployment, at 4.7 percent, hovers near all-time lows.

The Dow Jones blue-chip stock average closed Tuesday at 11,639.77, nearing its all-time high of 11,722, set Jan. 14, 2000. That's lifted millions of U.S. workers' 401(k) retirement holdings.

So why aren't Americans celebrating?

"It's not showing up in their paychecks the way you'd expect," said Jared Bernstein, chief economist for the liberal Economy Policy Institute in Washington. "The gap between the economy from 40,000 feet and on the ground level just seems to get wider with every new report."

The same week that the robust GDP numbers came out, the government also reported that worker compensation — pay and benefits — increased in the first quarter at an annual rate of only 2.4 percent, the slowest rate in seven years. That figure, Bernstein said, suggests that workers' wages aren't keeping pace with gains during past economic expansions.

"The problem is you have faster-growing prices colliding with nominal wage growth that has been pretty unimpressive," he said.

Some on Wall Street agree.

"Only the elite at the upper end of the occupational hierarchy have been spared the pressures of an increasingly brutal wage compression," said Stephen Roach, chief economist for banking giant Morgan Stanley.

In a March analysis for investors, Roach concluded that an increasingly globalized U.S. economy isn't a rising tide that lifts all boats. Instead, "the rich are, indeed, getting richer, but the rest of the workforce is not."

A closer look at the composition of the workforce helps explain why many Americans aren't cheering all the strong economic news in the headlines.

The Labor Department said in 2004 that 51.6 percent of all workers are concentrated in five job categories with average hourly wages of $15.50 per hour or less. The national average wage was $18. These are the people most likely to suffer from rising gas prices and credit rates.

In fact, two government measures of workers' pay — median weekly earnings (the point where half of Americans make more and half make less) and a broader index that adds benefits such as health insurance to compensation — grew more slowly than inflation over the past 12 months, and two other wage indices surpassed inflation only slightly. That suggests that many workers' income is either losing ground or barely holding even.

What's behind the tepid wage growth is debatable. Union leaders say companies are retaining more profits at workers' expense. Business leaders say they have been paying more for benefits such as health care and that has stifled wage growth.

Another theory, supported by Morgan Stanley's Roach, is that greater global competition has created a huge supply of workers that effectively keeps the price of U.S. labor closer to international norms.

The chairman of President Bush's Council of Economic Advisers, Edward Lazear, acknowledged May 2 that wage growth has lagged, but he said it would soon follow economic growth.

"As the expansion progresses, wages tend to catch up to productivity growth, and eventually the growth rate of wages exceeds that of productivity. ... We are moving into that phase," Lazear told the Hudson Institute, a conservative policy-research center. Productivity, which measures a worker's output per hour, has outpaced historic norms for the past decade.

On Friday, the Bureau of Labor Statistics reported that hourly wages are up 3.8 percent over the past 12 months, supporting Lazear's view that a turn is coming. The bureau also said average weekly earnings are up by 4.1 percent.

By comparison, inflation rose by 3.4 percent over the year ending in March as measured by the consumer price index.

The Bush administration, in an effort to deflect criticism about wage growth, is talking up the economy's rebound in job creation after years of a "jobless recovery," with 32 consecutive months of job growth and 2.5 million net new jobs over the past year.

But there were 143.7 million active workers on payrolls in April, and most of their wages have grown more slowly in recent years than they did during past business cycles.

Martin Regalia, chief economist for the U.S. Chamber of Commerce, said he thinks the economy will slow in the second half of this year. Third-quarter growth numbers will be released shortly before November's congressional elections. If they show a significant slowdown, as Regalia and most mainstream economists expect, that could turn voters against the governing Republican Party.

"How do you spin that politically?" Regalia asked. "It's been hard to sell this economy to the general public while it's been very good. How are we going to sell it when it is just good?"