Not surprisingly the latest poll on economic confidence as surveyed by the Gallup organization showed deterioration. Lydia Saad, from Gallup, wrote that “Americans’ confidence in the economy faltered last week — reversing the slight improvement seen in early September — and is now nearly as negative as it was throughout August after a steep decline in July. Gallup’s Economic Confidence Index for the week ending Sept. 25 is -52, compared with -54 in late August and -34 at the start of July. Confidence continues to run well below year-ago levels.”
Gallup’s economic confidence survey is based on nightly interviews with approximately 500 national adults as part of Gallup Daily tracking, for a total of approximately 3,500 interviews each week. Gallup measures economic confidence as an index, using Americans’ ratings of current economic conditions on a four-point scale (as excellent, good, only fair, or poor) and their perceptions of the economy’s direction as either getting better or getting worse.
With the average American under a lot of financial strain at home the recent volatility in the markets, political infighting, geopolitical stress and potential sovereign defaults certainly has weighed on their psychological state. Gallup trends show economic confidence has a very high correlation to market performance. What is interesting, however, is that the poll tends to lead the financial market. The last time the economic confidence poll had declined to current levels the financial markets were still hovering near highs, however, the poll had started its decline months before the market turned sour.
Likewise, the current decline in economic confidence began in January of this year and only recently has the market started playing catch-up to the dismal outlook of polled Americans. Maybe our politicians and Wall Street economists should start listening to Main Street a little more. The data suggests that the average American has a better track record of predicting economic and market trends.