I strongly agree with the notion of a permanent underclass, but it is not forming, rather it is expanding rapidly.
When I look at my recent behavior, I would have to say I feel better about the economy than a year ago. That is, I made more discretionary purchases over the past few months, due in large measure to the fact that I have noticed my clients in the health care field are stabilizing their finances. As a result, my personal book of business is stable. That is solely a personal perspective, but it has been encouraging.
While the stock and bond markets have done well, and this has improved my day to day financial perspective, I notice that now I devote little discretionary income to non retirement investment accounts. I think that means I am not very confident in the economy. But it is a whole lot better than counting losses. The counter to that is that home prices will continue to fall as distressed sales continue to increase. Since I don't need to sell my home, that is not an issue that I worry about at present, but if I needed to access my home equity for whatever reason, I would be deluding myself to think that value is stable.
On two fundamental points I feel that little has changed. First, my firm is not able to make new hires, or to hire back laid off professionals and staff. One can only drive so much productivity with a diminishing work force, but if the demand for services is not rising it would be illogical to make new hires. Thus, prospects for growth are grim. I believe this is true across service industries. Hence, I am more pessimistic than a year ago about the state of employment; that is only because one could not see with certainty the plummeting demand for services through the first six months of 2009, not in February last year at least. Without job growth, (and again it is fair to ask from where are the jobs coming) (even Ford on the manufacturing side - as well as it is doing - won't be hiring for at least 18 months), it is very tough to be optimistic about a long term recovery.
Second, I think we as a society have not come close to coming to grips with the massive deleveraging that is taking place in the economy. Little has been accomplished on that point; until it is, it is hard to be optimistic about where things are headed. Too much uncertainty on that point equals a lot of anxiety.
All this said, I have a general sense that the economy is more stable than a year ago. But wow, that is a very low bar.