It’s bad news when Americans lose confidence in the economy.
When confidence deteriorates, consumers become worried about their jobs and their paychecks, which in turn makes them want to spend less. And considering that personal consumption accounts for 68% of GDP, the consequences can be huge.
During the week ending May 3, Gallup’s US Economic Confidence Index fell to -9, the lowest level since December.
“The recent dip in Americans’ economic confidence — which is being dragged down largely by the lower economic outlook component — is likely the culmination of a variety of economic factors,” Gallup’s Justin McCarthy writes.
“Though stocks rebounded by last Friday, the previous week had been fraught with market losses in the Dow Jones industrial average and Standard & Poor’s 500 market indexes. Meanwhile, the prices Americans were paying for gas increased in the latter half of April, with the U.S. Energy Information Administration reporting an increase of 17 cents per gallon over two weeks. Gallup has found that Americans’ confidence in the economy is related to how much they pay at the pump. Additionally, the recent report that the nation’s GDP grew a lacklustre 0.2% in the first quarter — a disappointing figure compared with previous quarterly growth — may have dampened consumers’ economic hopes.”
But like most economists, Gallup is optimistic this downturn is a temporary blip.
“Unless the economic news continues to be bad, Americans may soon forget about the weak first quarter GDP and rising gas prices, which, the EIA projects, will stabilise during the summer,” McCarthy added. “And even in the midst of last week’s negative economic news, there were bright spots, including the federal government’s reporting increases in consumer spending and a 15-year low in jobless claims. But last week, the bad news appeared to carry more weight in Americans’ evaluations than the good news.”
Gallup’s survey included 3,542 responses from adults in all 50 US states and DC.
Here’s how the index is calculated: “Gallup’s Economic Confidence Index is the average of two components: Americans’ ratings of current economic conditions and their views of whether the economy is improving or getting worse. The theoretical maximum of the index is +100, if all Americans say the economy is “excellent” or “good” and “getting better.” The theoretical minimum is -100, if all Americans say the economy is “poor” and “getting worse.””