The FINANCIAL — Gallup’s Economic Confidence Index declined to an average of -12 in July from -8 in June. This is the lowest monthly average since last October, and is a noticeable departure from the +3 average in January.
After six consecutive months of improvement beginning in August 2014, Gallup’s Economic Confidence Index averaged +3 in January, the first time it was in positive territory since Gallup began tracking it daily in 2008. However, the index began dropping in February as gas prices start to rise, and dropped further to -7 in May after reports of disappointing economic growth in the first quarter.
The U.S. saw still more erosion in Americans’ economic confidence in July as the Greek economic crisis played out and the U.S. stock market reacted to it and to drops in the Chinese stock market. Confidence averaged -11 during the last week of the month, July 27-Aug. 2.
Gallup’s Economic Confidence Index is the average of two components: Americans’ ratings of the current economy and their views of whether the economy is improving or getting worse. The former component dropped only slightly, while the latter had a large drop last month, according to Gallup.
The current conditions component averaged -6 in July, slightly below the -4 of June. The July average was the result of 25% of Americans rating the current economy as “excellent” or “good” and 31% rating it as “poor.” In July, 39% of Americans said the economy was “getting better,” while 56% said it was “getting worse.” This resulted in an economic outlook score of -17, the lowest since August 2014.
The 11-point difference between the components is one of the largest Gallup has found since May 2013. Americans briefly rated the outlook for the economy more positively than they viewed the current economy from December 2014 through February 2015. But since March, Americans have grown increasingly negative about the economy’s outlook, while their views of current conditions have soured only slightly.
Average Among Upper-Income Americans Negative for First Time in 10 Months
In July, Gallup’s Economic Confidence Index fell seven points, from +6 to -1, among those with annual household incomes of $90,000 or more. This is the first time the index has been in negative territory for this group since September. The index among lower- and middle-income Americans, those with annual household incomes below $90,000, was fairly stable in July, at -14.
The trends for Americans in both income groups have followed similar patterns over time, but in July, there was a larger change among upper-income Americans than among middle- and lower-income Americans. Upper-income Americans’ confidence may be higher in general because they are more likely to be invested in, to benefit from and to be sensitive to changes in the U.S. stock market. However, the U.S. stock market was fairly volatile in July, reacting to the poor economic news abroad.
While the stock market did end up improving slightly in July, upper-income Americans may have had lower confidence in the economy because of this earlier volatility. This group may also be more aware of the economic troubles in other parts of the world as they relate to the domestic markets.
A number of factors may be affecting how Americans view the direction of the country’s economy, including unsettled economic conditions in Europe and in China and the volatility of the U.S. stock market. All of these could be making Americans — particularly those with higher incomes — more pessimistic. Although upper-income Americans remain more positive than lower- and middle-income earners about the economy, the gap between the two groups narrowed in July as economic confidence among upper-income Americans was negative for the first time in 10 months.