Public Confidence in the Wake of Enron

by Dennis Jacobe, PhD
Gallup Chief Economist

Economic recovery could be slowed by improved/tougher accounting standards

New Gallup poll data (Feb 8-10) show that three out of four Americans think that the top executives at some (50%) or most (25%) large corporations participate in practices similar to those of the top executives at Enron. Further, about nine out of 10 Americans (89%) feel that the Enron situation is somewhat or very important to the nation. Of course, they are right about the importance of Enron, although the economic impact may not be immediately apparent to them. And when it is, it may be too late to save a lot of people's jobs.

While public optimism continues to grow about an economic recovery in the coming months, most Americans who are employed or looking for work see the current job situation as dismal. According to a February Gallup economic poll*, only one out of four Americans (25%) thinks that now is a good time to find a job. This is essentially the same percentage that felt this way throughout the fourth quarter of 2001 and in January of this year. More importantly, it is completely opposite of about 18 months ago (August 2000) when more than three out of four Americans (78%) said it was a good time to find a job.

Further, half of the U.S. public (51%) tells Gallup that they personally know someone who has been laid off or fired recently. This is down from 54% in November of last year and slightly above the 50% who reported this in October 2001. Finally, about seven out of 10 (69%) of those who know someone who has been recently laid off or fired say that the number of people involved is larger than usual. Unfortunately, it seems likely that Enronitis and the reaction to it could worsen this situation in the months ahead.

Job Outlook Remains Dim

Even before the congressional hearings get into full swing and any new laws are passed, and long before anyone goes to jail, the Enron debacle will have a major impact on the U.S. business community. Securities industry regulators and public accounting professionals are very concerned about a potential loss of investor and public confidence in corporate financial reports. As a result, accounting discussions in boardrooms across the country are likely to be much different in the months ahead than they have been in the past. Major accounting firms are going to be much less likely to condone financial treatments at their high-risk clients that "push the envelope." More significantly, some established accounting procedures may be undone, forcing companies to expend considerable resources implementing new ones.

What this means for the economy is that corporate profits may not recover as quickly as they might have otherwise. Some companies might end up posting substantial losses or even going the way of Enron and Global Crossing. In turn, capital investments may continue to be delayed. Sustained consumer spending levels could finally break, and a double-dip recession could become reality. Given this scenario, public pessimism about jobs may be well-founded; the employment picture may continue to be weak and could get even bleaker over the next couple of quarters.

*Results are based on telephone interviews with 1,011 national adults, aged 18 and over, conducted Feb. 4-6, 2002. For results based on the total sample of national adults, one can say with 95% confidence that the margin of sampling error is ±3 percentage points.

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