No Surprise that Americans’ Economic Confidence is in a Freefall

By at 22 April, 2020, 8:55 am

The Latest Gallup Economic Confidence Index: Americans will “wait and see” what happens

by Raymond J. Keating-

The sudden and sharp drop in Americans’ economic confidence, according to Gallup’s Economic Confidence Index, seems to be without precedent.

The Index dropped by 54 points in April, which followed on a 19-point decline in March. As Gallup noted, “Just two months ago, economic confidence was the highest it had been in 20 years.”

The precipitous falloff is unmistakable in the following chart from Gallup.

For now, at least, the outlook isn’t as grim as the depths of the Great Recession, which hit a low of -72 in October 2008. The theoretical range for the Index is a high of +100 and a low of -100.

It’s not surprising, given the more than 20 million suffering sudden unemployment, that the assessment of the job market was quite grim as well.

The tightness of the labor market heading into the coronavirus crisis made the decline in the jobs outlook even more striking. Gallup reported that “22% of Americans say it is a good time to find a quality job,” which “is down from 68% in the prior reading from January, which was only slightly off the trend’s high point of 71% in May 2019.” (See the following Gallup chart.)

The suddenness of this economic downturn is the most striking fact, and again, not surprising given the source of the problem – a deadly pandemic – and the government’s response to shutdown large swathes of the economy. However, to expect some kind of economic snapback likely amounts to wishful thinking.

First, Americans appear to be very cautious about getting back to some kind of normal. For example, Gallup also reported on April 14:

“When asked how quickly they will return to their normal activities once the government lifts restrictions and businesses and schools start to reopen, the vast majority of Americans say they would wait and see what happens with the spread of the virus (71%) and another 10% would wait indefinitely. Just 20% say they would return to their normal activities immediately.”

Second, the devastating loss of who-knows-how-many businesses – most being small enterprises – will be felt deeply and for a considerable amount of time. Caution also is likely to prevail among investors and lenders for some degree of time after the coronavirus outbreak becomes manageable.

Third, while government aid is necessary, given the government shutdown, to help individuals, families and small businesses survive in the near term, the longer such unprecedented levels of government spending last beyond the crisis period, the longer it will take for the economy to recover and start growing again.

Looking beyond the crisis, policymakers need to be laying out a path where government emergency functions contract or withdraw, so that economic freedom can expand, thereby restoring economic, income and job growth.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.


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