New Gallup Poll economic data suggest that the crisis of
confidence that has been dominating Wall Street for weeks is now
spreading to Main Street. Nearly twice as many American consumers
now say that the economy is getting worse (57%) than say it is
getting better (31%). And the percentage of consumers worried about
such things as paying their monthly bills is increasing. Consumer
sentiment, like investor optimism, seems to be returning to its
pre-Sept. 11 lows.
While the accounting/reporting debacle continues to be the major
source of the current confidence problem, the underlying economic
story may be a little more complicated. Last summer, the U.S.
economy was in recession. Both consumer and investor confidence
were dropping. The fear was that consumer spending, which had been
holding the economy up, was finally going to break, increasing the
length and severity of the recession.
Then the Sept. 11 attacks took place. Instantly, both investor
and consumer perceptions of the economy plunged, as did economic
activity. Within weeks, however, we saw a major rally effect take
hold. Americans united, not only to support the war on terrorism,
but also the U.S. economy. By early 2002, investors and consumers
were showing a lot of optimism about the economy's future, and the
level of economic activity increased sharply.
During the second quarter, the vestiges of the so-called rally
effect dissipated. At the same time, it became clear that
"Enronitis" was not an isolated event and the current crisis of
confidence on Wall Street took hold. While the economic data don't
indicate the U.S. economy has returned to the recession of late
last summer, we are actually close to those conditions in terms of
investor/consumer perceptions. And the economy will follow.
Financial Worries Are Increasing
According to new Gallup poll data (July 5-8)*, the percentage of
Americans very or moderately worried about having enough money to
pay their monthly bills increased to 37% in July. This is up from
30% in April 2002 and the 32% in April 2001.
Similarly, the percentage of Americans very or moderately
worried about having enough money to maintain the standard of
living they enjoy increased to 44% in July, up from 35% in April of
this year and equal to the 43% in April 2001.
More reflective of the negative wealth effect associated with
the crisis of confidence on Wall Street than the worries on Main
Street, the percentage of Americans very or moderately worried
about having enough money for retirement increased to 57% in July.
This is up from 54% in April and 53% a year ago.
Worries Suggest Weakness
Consumers' financial worries are also elevated in more specific
areas. Gallup poll data show four in 10 consumers are very or
moderately worried about being able to afford a major new purchase,
such as a car or large appliance, if they needed one. Even more
significantly, 48% of currently employed adults say they very or
moderately worried about being able to find another job at their
current salary if they lose the job they now have. With so many
Americans worried about these financial issues, it is not
surprising that investor and/or consumer optimism have
plummeted.
*Results are based on telephone interviews with 1,013 national
adults, aged 18 and older, conducted July 5-8, 2002. For results
based on the total sample of investors, one can say with 95%
confidence that the margin of sampling error is ±3 %.
