PRINCETON, NJ -- As economists examine the factors that
may contribute to an economic recovery in the United States, one of the
major areas of focus is the psychological orientation of consumers -- how
confident they feel about the economy, and thus how likely they are to
spend money for goods and services. Following the terrorist attacks in
this country, some recent news reports have suggested or implied that the
attacks themselves have contributed to a deterioration of consumer confidence.
In last Sunday'sNew York Times, for example, the former Secretary
of the Treasury Robert E. Rubin noted the problems facing the economy,
and then added, "To this complex picture, the [terrorist] attacks added
uncertainty and reduced consumer and investor confidence." |
Polling results, however, do not yet support this conclusion.
Several indices suggest no change in consumer and investor sentiment immediately
before and after the attacks, while others suggest that the attacks may
have caused the public to become more, rather than less, positive about
the economy. |
One fact has been well established. The public's optimism
about the economy and their personal financial situations was dropping
rapidly in the months, and even in the last week, before the September
11 terrorist attacks. Now the question is whether the terrorist attacks
will accelerate this negative consumer trend. |
Several publicly released surveys conducted these past
three weeks include results from both shortly before the September 11 attacks
(in either August or early September), and shortly after them. These surveys
include Gallup’s general measures of Americans’ perceptions of the economy,
the University of Michigan consumer sentiment index, a consumer confidence
track by ABC News/Money, and the monthly UBS/PaineWebber/Gallup poll of
investor optimism. |
All of these surveys found that consumer or investor
confidence dropped sharply between August and early September -- prior
to the attacks. None of these recorded a further downturn of consumer attitudes
in the first week after of the attacks. To the contrary, several showed
confidence up significantly in the immediate aftermath. |
The percentage of Americans rating current economic conditions
in positive terms rose from 32% in a Gallup poll conducted just before
the attacks to 46% in a survey taken three days after the attacks. Similarly,
the percentage of Americans who said the economy is getting better rose
from 19% to 28% over the same period. |
The ABC News/Money measure of "consumer comfort" also
found Americans’ evaluation of the economy remaining constant rather than
deteriorating after September 11. This pattern persisted into the second
week after the attacks. |
The monthly UBS PaineWebber/Gallup Index of Investor
Optimism conducted in the first half of September showed that September
11 had no effect on the economic attitudes of Americans with $10,000 or
more in stock holdings. The measure had fallen significantly in early September,
but interviews conducted from the 12th through the 16th showed no further
change. |
There was no change in the percentage of Americans saying
that the United States is in a recession in a Gallup poll comparison of
attitudes from just before the attacks to Sep 21-22. |
One notable indicator of consumer confidence is the Conference
Board’s Consumer Confidence Index. On September 25, the Conference Board
released its September data showing that consumer confidence dropped 17
points that month. However, as the Conference Board makes clear, these
data were collected almost entirely before September 11, and thus cannot
be used as an indicator of the effect of the attacks on American consumers. |
Reports of the University of Michigan Survey of Consumers
probably caused the greatest concern among economists. The overall index
dropped in September, but a release by the director of the Michigan survey
indicated that the index went up in the first week after the attacks, only
to fall significantly the second week after them. The Michigan Survey consists
of a total of 500 completed interviews each month, and it will be important
to monitor the results from a complete sample in October to see if the
indication of a drop in their measure of consumer confidence based on a
limited sample late in September continues. |
In addition to the clear pre- and post-September 11 trends
discussed above, there are four measures of economic confidence that have
been obtained since the attacks for which only comparisons dating back
to July or earlier can be made. Measures that span this period would generally
be expected to have decreased due to the general deterioration in economic
conditions and consumer confidence throughout 2000. Thus, to the extent
they show no change or an improvement in consumer sentiment over this time
period, they suggest that the attacks did not accelerate an already gloomy
economic situation. |
The indications in this category provide a mixed picture.
On one hand, a measure of whether or not consumers think it is a "good
time to buy" was more positive in a Sep. 21-22 Gallup poll than it had
been in April. A Pew Center poll showed that Americans’ assessment of their
own financial situations stayed constant compared to June, but when asked
to look ahead, they had become more negative. A Time/CNN measure of the
current economy is more negative now than it was in April, but its companion
measure concerning the future has become more positive. |
What are we to make out of all of these measures? Certainly
we can reject the hypothesis that the attacks immediately caused the bottom
to drop out of consumer confidence. The attitudes of consumers had already
fallen to a mid-1990s low point, but the attacks did not cause them to
drop further in the short-term. |
At Gallup, we know from our other polling that Americans
have rallied to support their country in recent days -- President Bush’s
job approval has reached historic highs, and satisfaction with the way
things are going has jumped up, rather than declined. Clearly, some of
the short-term economic confidence measures that went up after the attacks
reflect the same wave of national unity that pushed Bush’s job approval
rating from 51% to 90% in a span of days. |
The reports of week-by-week partial results of the University
of Michigan study suggest the possibility that, as the weeks go on, consumer
confidence will resume its downward trend. But a September 28 Newsweek
study provides a counter indication, showing a small decline, compared
to the week before, in the number of Americans who perceive that the country
is in for a major recession. Some economic sectors, such as travel and
hotels, are clearly in great distress and the ripple effect from those
and other industry cutbacks and layoffs may not yet have been felt. There
is also the unknown impact of looming military action in Afghanistan and
elsewhere, a prolonged war against terrorism, and the possibility of additional
terrorist attacks within the United States. |
Thus, firm projections about consumer feelings should
be made with caution. It may seem logical to expect that consumers will
react to the recent terrorism by curtailing their spending. But, surveys
exist to provide a quantitative tool for evaluating attitudes such as consumer
confidence, and for now these measures are telling us that consumers’ economic
and financial perceptions did not collapse immediately following the terrorist
attacks. So far, it appears, the American consumer is hanging in there
and has not yet succumbed to rampant pessimism about the economic future. |