The collapse in Americans’ confidence in the economy brought on by the shutdown of the federal government is slowly rising again. The Gallup economic confidence index plunged to -39 in the week ending October 13, down 12 points from the previous week, but has risen for the past four weeks to reach a new level of -27 in the week ending November 10. The index reached its highest level of the year, -3, in June.
Gallup notes that most of last week’s improvement came in the last three days of the period, reflecting record high stock prices and better-than-expected job growth in October. The furor over the problem-plagued roll-out of Obamacare had little impact on Americans’ confidence last week.
The recovery is slower than other recent confidence-killing episodes:
Americans' confidence appears to be recovering more slowly than it did after other recent instances of partisan brinkmanship, such as the fiscal cliff debate at the end of last year and the sequestration debate in early March. However, confidence did not drop as sharply then as it did during the shutdown. On the other hand, economic confidence took about five months to recover after the 2011 debt ceiling crisis, likely related to the subsequent downgrading of the U.S. credit rating and plummeting stock prices, set against the backdrop of a generally weaker economy at that time.
The economic confidence index comprises two components: a current conditions index and an index on the outlook for the U.S. economy. Last week 39% of those surveyed said current conditions are poor and 62% said the outlook is getting worse. The outlook index now stands at -28, up 11 points from the recent low.
Falling gasoline prices and rising house prices have also had a positive impact on confidence. Gasoline prices are expected to continue declining at least through the end of the year. Housing price increases continue to rise, but the month-over-month increases are getting smaller and that is helping to keep mortgage interest rates in check.