Start of Iraq War Boosts Employee Optimism

by Dennis Jacobe, PhD
Chief Economist, The Gallup Organization

Even as press reports claim that the war with Iraq has damaged public confidence in the U.S. economy, the latest figures of the Gallup/UBS Employee Outlook Index* show just the opposite to be the case. In early March, optimism among U.S. employees about the future of their companies continued to decline, but it completely reversed and surged upward following the start of the war. Even more importantly, the majority of employees at private sector, for-profit companies say they think a successful conclusion to the war will immediately:

  • increase the amount of business their companies do
  • increase their companies' potential to grow
  • increase the amount of profit their companies will earn

Employee Confidence Surges Upward . . .

In a March 3-5 poll prior to the beginning of the war with Iraq, employee confidence hit a new low of 47, suggesting that employee optimism was headed for its fourth consecutive monthly decline. After the start of the war (March 24-25), however, employee confidence surged to 72, matching its benchmark high of a year ago (April 2002).

All three dimensions of the Employee Outlook Index showed similar trends over the past month:

  • The Present Company Conditions Index seemed destined to match its low point of 69 in early March, but surged upward to 84 following the start of the war. Employee confidence in the present conditions at their companies is now only five points below its April 2002** high of 89.
  • The Future Company Conditions Index also was headed for a new low of 47 in early March. Following the beginning of the war, however, it soared to 75 -- essentially equaling its November 2002*** high of 76. Employee expectations concerning the future prospects of the companies they work for now match their highest level since the Index's inception in April 2002.
  • The Job Security Index was plummeting prior to the war and appeared to be headed for a new low of 25 in early March. Like the other two dimensions composing the Employee Outlook Index, the Job Security Index surged upward following the start of the war and reached 57 in late March -- its highest level since the Index began tracking employee job security a year ago.

. . . And Optimism About Post-War Conditions Reigns

By a margin of 74% to 10%, U.S. employees say that it is the "state of the economy," not the "war with Iraq" that is hurting their companies. Thirty-four percent of employees also say that their companies experienced a hiring freeze at some time during the past year, while 29% expect to experience a hiring freeze during the next 12 months. These perceptions clearly reflect the underlying weakness of the U.S. economy and the need for additional economic stimulus.

Still, 55% of employees say that a successful conclusion to the war is "very likely" (22%) or "somewhat likely" (33%) to immediately increase the amount of business their companies will do. Similarly, 53% say successfully ending the war is very or somewhat likely to immediately increase their companies' growth potential, while 52% say it is likely to immediately enhance their companies' profits. A somewhat smaller number of employees (36%) say the end of the war is likely to immediately improve the employment situation at their companies.

The wartime rally effect applies not only to the president's approval rating, but also to employee confidence. As was the case following the Sept. 11 terrorist attacks, the successful conclusion of the war with Iraq seems destined to provide policy-makers with another surge in public confidence. Hopefully they'll make better use of this opportunity than they did in late 2001, and we'll get a real economic recovery going later this year.

*Results are based on telephone interviews with 696 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted March 3-5, 2003, and March 24-25, 2003. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±4%. For results based on the pre-war and after the war started samples, one can say with 95% confidence that the maximum margin of sampling error is ±6%.

**Results are based on telephone interviews with 663 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted April 8-11, 2002, and April 22-24, 2002. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±4%.

***Results are based on telephone interviews with 599 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted Nov. 11-14, 2002, Nov. 22, 2002, and Nov. 25-26, 2002. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±4%.

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