Increased Consumer Confidence: Real or Illusory?

GALLUP NEWS SERVICE

PRINCETON, NJ -- Among the key economic data to be released later this week is the University of Michigan's preliminary consumer confidence estimate for May. April's increase in consumer confidence has many prognosticators looking to the consumer to lead the way as the much-anticipated post-war economic recovery unfolds. The question is whether consumer confidence will continue to increase in May and the months ahead or, instead, simply fade away as might any mirage.

Consumers Say Economic Conditions Are Near Pre-War Lows

Twenty-eight percent of the public rate current economic conditions as poor, according to a new Gallup Poll (May 5-7), while only 22% rate them good or excellent. This differential (excellent/good minus poor) of -6 percentage points means that the American consumer's assessment of current economic conditions is just about as bad as it was in March -- prior to the war -- when 32% of the public rated conditions poor, and 22% rated them good/excellent, for a differential of -10 percentage points.

Of course, the consumer's assessment of the economy did surge upward just after the war started. Thirty-three percent of the public rated economic conditions as good/excellent, and 20% rated them poor, for a differential of +13% in Gallup's March 24-25 poll. The differential declined to +5 percentage points as Baghdad fell, but its latest decline in May wiped out nearly all the earlier increases in consumer perceptions.

Majority Also Say Economic Conditions Are Getting Worse

Half of the public (51%) also tells Gallup that economic conditions in the country as a whole are getting worse. This is the same percentage who held this view in April (7-9), but substantially below the two out of three Americans (67%) who thought things were getting worse just prior to the war in March (3-5). In fact, the differential between those saying economic conditions are getting better and those saying they are getting worse is now only -9 percentage points -- much improved over the pre-war differential of -44 percentage points in March (3-5).

Surge in Consumer Confidence is an Illusion

As those on Wall Street and in the business community evaluate the preliminary consumer confidence report on Friday, they should consider the possibility that it is more illusion than real. They should do so not only because the preliminary report is based on a very small survey -- 250 respondents -- but also because of the findings of Gallup's more frequent surveys.

The surge in consumer confidence, reflected by the public's better economic conditions ratings as the war began, was very short-lived. Consumers were relieved to see the fog of potential war lifted, but soon they saw that economic reality was not as bright as they had hoped. The monthly data provided by the traditional consumer confidence/sentiment indices tends to disguise the brevity of the surge in consumer confidence.

In this same context, far too much can be made of the increase in the percentage of consumers who hope economic conditions are getting better -- the majority still feel things are getting worse. When both consumer ratings of current economic conditions are increasing and the majority of consumers feel things are getting better, consumer confidence is clearly improving. The same cannot be said when current condition ratings are declining.

During the first half of this year, consumers have been rating the economy at near recession levels, comparable to those of late 1993. The war made it appear as though this had changed and some consumer confidence measures may continue to do so. Gallup's attitudinal economic data suggests, however, that this change in consumer confidence is more illusory than real.

Survey Methods

Results are based on telephone interviews with 1,005 national adults, aged 18+, conducted May 5 – 7, 2003. For results based on these total samples, one can say with 95% confidence that the margin of sampling error is ± 3 percentage points.