GALLUP NEWS SERVICE
PRINCETON, NJ -- As economists examine the factors that may contribute to an economic recovery in the United States, one of the major areas of focus is the psychological orientation of consumers -- how confident they feel about the economy, and thus how likely they are to spend money for goods and services. Following the terrorist attacks in this country, some recent news reports have suggested or implied that the attacks themselves have contributed to a deterioration of consumer confidence. In last Sunday'sNew York Times, for example, the former Secretary of the Treasury Robert E. Rubin noted the problems facing the economy, and then added, "To this complex picture, the [terrorist] attacks added uncertainty and reduced consumer and investor confidence."
Polling results, however, do not yet support this conclusion. Several indices suggest no change in consumer and investor sentiment immediately before and after the attacks, while others suggest that the attacks may have caused the public to become more, rather than less, positive about the economy.
One fact has been well established. The public's optimism about the economy and their personal financial situations was dropping rapidly in the months, and even in the last week, before the September 11 terrorist attacks. Now the question is whether the terrorist attacks will accelerate this negative consumer trend.
Several publicly released surveys conducted these past three weeks include results from both shortly before the September 11 attacks (in either August or early September), and shortly after them. These surveys include Gallup's general measures of Americans' perceptions of the economy, the University of Michigan consumer sentiment index, a consumer confidence track by ABC News/Money, and the monthly UBS/PaineWebber/Gallup poll of investor optimism.
All of these surveys found that consumer or investor confidence dropped sharply between August and early September -- prior to the attacks. None of these recorded a further downturn of consumer attitudes in the first week after of the attacks. To the contrary, several showed confidence up significantly in the immediate aftermath.
The percentage of Americans rating current economic conditions in positive terms rose from 32% in a Gallup poll conducted just before the attacks to 46% in a survey taken three days after the attacks. Similarly, the percentage of Americans who said the economy is getting better rose from 19% to 28% over the same period.
The ABC News/Money measure of "consumer comfort" also found Americans' evaluation of the economy remaining constant rather than deteriorating after September 11. This pattern persisted into the second week after the attacks.
The monthly UBS PaineWebber/Gallup Index of Investor Optimism conducted in the first half of September showed that September 11 had no effect on the economic attitudes of Americans with $10,000 or more in stock holdings. The measure had fallen significantly in early September, but interviews conducted from the 12th through the 16th showed no further change.
There was no change in the percentage of Americans saying that the United States is in a recession in a Gallup poll comparison of attitudes from just before the attacks to Sep 21-22.
One notable indicator of consumer confidence is the Conference Board's Consumer Confidence Index. On September 25, the Conference Board released its September data showing that consumer confidence dropped 17 points that month. However, as the Conference Board makes clear, these data were collected almost entirely before September 11, and thus cannot be used as an indicator of the effect of the attacks on American consumers.
Reports of the University of Michigan Survey of Consumers probably caused the greatest concern among economists. The overall index dropped in September, but a release by the director of the Michigan survey indicated that the index went up in the first week after the attacks, only to fall significantly the second week after them. The Michigan Survey consists of a total of 500 completed interviews each month, and it will be important to monitor the results from a complete sample in October to see if the indication of a drop in their measure of consumer confidence based on a limited sample late in September continues.
In addition to the clear pre- and post-September 11 trends discussed above, there are four measures of economic confidence that have been obtained since the attacks for which only comparisons dating back to July or earlier can be made. Measures that span this period would generally be expected to have decreased due to the general deterioration in economic conditions and consumer confidence throughout 2000. Thus, to the extent they show no change or an improvement in consumer sentiment over this time period, they suggest that the attacks did not accelerate an already gloomy economic situation.
The indications in this category provide a mixed picture. On one hand, a measure of whether or not consumers think it is a "good time to buy" was more positive in a Sep. 21-22 Gallup poll than it had been in April. A Pew Center poll showed that Americans' assessment of their own financial situations stayed constant compared to June, but when asked to look ahead, they had become more negative. A Time/CNN measure of the current economy is more negative now than it was in April, but its companion measure concerning the future has become more positive.
What are we to make out of all of these measures? Certainly we can reject the hypothesis that the attacks immediately caused the bottom to drop out of consumer confidence. The attitudes of consumers had already fallen to a mid-1990s low point, but the attacks did not cause them to drop further in the short-term.
At Gallup, we know from our other polling that Americans have rallied to support their country in recent days -- President Bush's job approval has reached historic highs, and satisfaction with the way things are going has jumped up, rather than declined. Clearly, some of the short-term economic confidence measures that went up after the attacks reflect the same wave of national unity that pushed Bush's job approval rating from 51% to 90% in a span of days.
The reports of week-by-week partial results of the University of Michigan study suggest the possibility that, as the weeks go on, consumer confidence will resume its downward trend. But a September 28 Newsweek study provides a counter indication, showing a small decline, compared to the week before, in the number of Americans who perceive that the country is in for a major recession. Some economic sectors, such as travel and hotels, are clearly in great distress and the ripple effect from those and other industry cutbacks and layoffs may not yet have been felt. There is also the unknown impact of looming military action in Afghanistan and elsewhere, a prolonged war against terrorism, and the possibility of additional terrorist attacks within the United States.
Thus, firm projections about consumer feelings should be made with caution. It may seem logical to expect that consumers will react to the recent terrorism by curtailing their spending. But, surveys exist to provide a quantitative tool for evaluating attitudes such as consumer confidence, and for now these measures are telling us that consumers' economic and financial perceptions did not collapse immediately following the terrorist attacks. So far, it appears, the American consumer is hanging in there and has not yet succumbed to rampant pessimism about the economic future.
