Just How Bad Is the Economy?

PRINCETON, NJ -- There's little question that the economy is becoming a major issue in the minds of Americans. Its top-of-mind salience may be lower than otherwise would be the case because of the looming anniversary of Sept. 11, the ongoing war on terrorism and the debate about military action in Iraq. But when we step back and look carefully at our Gallup Poll data, we get a more complete understanding of just how worried the average American is at this time about the way things are going economically.

To begin with, we note the significant finding that the public's rating of the national economy has been as low in recent weeks as at any point since 1994. Only 24% of Americans rate the economy as excellent or good. In mid-August, 28% rated the economy as poor, which was the first time the "poor" rating had outdistanced the "excellent/good" rating since April 1994. In our most recent poll, completed Sept. 8, the "poor" rating dropped back down slightly to 23%, while the excellent and good rating stayed the same at 24%.

Ratings of the national economy have been sliding since they reached a peak in the summer of 1999 and again in the summer of 2000. Something out there across the land -- either firsthand experience and/or reaction to news reports about corporate corruption and a declining stock market -- is causing the American public to perceive that the economy is not doing at all well at this point.

There is slightly more optimism when we look at another measure we track twice a month: perceptions of whether the economy is getting better or getting worse. We've seen this indicator move up significantly earlier this year, when Americans were becoming convinced that the economy was on the way up. But those hopes collapsed. The momentum indicator fell right back down again in more recent months as Americans apparently gave up on their hopes of a recovery. The percentage who say the economy is getting worse is now 54% -- not quite as bad as it was in July, when at one point it reached 59%, but still very pessimistic in general.

Unfortunately, other measures that ask Americans to look at aspects of the economy are -- frankly -- pretty gloomy at this point. Only about one in five Americans think it is a good time to find a job. That assessment hasn't changed substantially over the last year. Ratings of Americans' own personal financial situations are trending slightly down, not up.

Our new Gallup/UBS rating of employees' views of their companies' financial health also shows a continuing downward trend. We think this measure is significant because it reflects what is in essence a "report from the trenches"; that is, the perceptions of workers who day in and day out can be presumed to have a pretty good feel for how their companies' business is doing. And these reports have been going downhill rather than uphill.

There are a number of political implications if the ratings of the current economy stay low or get even lower. We usually consider the economy to be one of the two major factors affecting presidential job approval (the other is foreign affairs). President Bush's job approval rating is now at 66%. This represents about a 10-point drop since early July. It's still up from Bush's pre-Sept. 11 average last year, and higher than the average for other presidents. But there is little question about the broad downward trajectory of the curve on this measure.

Bush's current job approval rating has stabilized over the past three weeks. This may be a reflection of a mini-rally effect around the one-year anniversary of 9-11. But the prospect of Bush approval numbers in the 50s by the midterm elections in November is very real.

There is rampant speculation about the impact on the fall congressional elections of the perceived bad economy and Bush's fall from stratospheric approval levels. Many observers contend that both trends will help the Democrats. Our latest generic congressional ballot shows the Democrats with a small lead over the Republicans.

But there is an emerging wild card that could affect the fall elections: the possibility of military action in Iraq. The public is not unaware of the rationale for such action. Almost nine out of 10 Americans say Saddam Hussein is involved in supporting terrorist groups that have plans to attack the United States. Slightly over half say he was personally involved in the Sept. 11 attacks. Most agree that Iraq either has or is developing weapons of mass destruction.

Most polls continue to show that a majority -- albeit not a supermajority -- of Americans support the idea of military action in Iraq. Our Gallup Poll completed on Sept. 5-8 has the support percentage at 58%, which is up slightly from mid-August. Additionally, these levels of support are similar to last year's levels, pre-Sept. 11, and to support levels in general over the decade since the conclusion of the Persian Gulf War. But last fall, at one point, about three-quarters favored the idea. Americans buy into the argument that allies should be involved and approve before military action is taken. Most polls show Americans think Congress should give its approval as well.

But when we ask Americans to indicate which will be more important in their vote this fall -- the economy or the possibility of war against Iraq -- it's the economy, by about a 2-to-1 margin.

And of course, the real, fundamental importance of the public's views of the economy is the correlation between these attitudes and consumer spending and economic activity. It’s clear from recent economic reports that car sales and to a degree the housing market have been helping the retail sector of the economy up to this point. But retail spending as reflected in back-to-school sales was down, and if the negative attitudes we have been finding continue, it could be that the important holiday shopping season ahead will suffer as well, creating a further drag on the economy.