PRINCETON, NJ -- Even as the Labor Department reported that the U.S. economy lost jobs during January 2008 -- the first time payrolls have declined in more than four years -- Reuters and the University of Michigan reported simultaneously that the Index of Consumer Sentiment increased from 75.5 in December to 78.4 in January. If this seems confusing, it should be. Gallup's consumer confidence measure also showed an increase in consumer confidence in early January compared to December 2007. However, Gallup's new daily tracking of Americans' economic perceptions shows consumer confidence actually declined through most of January 2008. In fact, consumer ratings of current economic conditions deteriorated among all consumer income groups last month.
Consumer Ratings Declined Dramatically During January
As January began, more consumers (nearly one in three) rated current economic conditions "excellent or good" than rated them "poor" (about one in four). By the end of the month, these percentages were reversed, with about one in four consumers saying the economy was "excellent" or "good" while one in three said it was "poor."
Consumer Ratings Declined Across All Income Groups
As might be expected, a higher percentage of lower-income consumers say current economic conditions are "poor" and fewer give them an "excellent" or "good" rating than is the case among higher-income consumers. What might not be expected is the way consumer ratings of the economy deteriorated across all income groups during January 2008.
During early January, 33% of those making less than $24,000 a year gave current economic conditions a "poor" rating while only about half as many -- 17% -- of those making $90,000 or more annually gave this rating. By the end of January, 44% of those making less than $24,000 annually said the economy was "poor," for an 11 percentage-point increase during the month. Similarly, among those making $90,000 or more a year, the percentage rating current economy "poor" increased by 7 points to 24%.
Economic Confidence Is Declining
While a new consensus seems to be building that the U.S. economy is heading for a recession if it is not already in one, some observers continue to suggest that this is an overly pessimistic assessment. In turn, the argument goes that the Fed did not need to sharply reduce interest rates and there is no need for an emergency fiscal stimulus. Friday's release of the Index of Consumer Sentiment showing an increase in consumer perceptions of the economy in January compared to December would seem to support this contrarian view.
But Gallup's consumer confidence measures tracked on a daily basis throughout the month suggest that monthly averages such as the Index of Consumer Sentiment may be slow to pick up the significant decline in consumer ratings of the economy that occur on a weekly or even daily basis during a month. In reality, Gallup's daily measures suggest that the trends in consumer confidence during January do not appear to be out of step with many other economic measures showing a sharply slowing U.S. economy, including the slow GDP growth of the fourth quarter 2007 and the loss of jobs in January 2008.
Right now, observers need to be very careful as they interpret new economic data. The economic psychology is shifting quickly and seems to be trending in a largely negative direction. As a result, it appears the Fed's aggressive rate cuts as well as the proposed fiscal stimulus are fully justified. Only time will tell whether they will succeed in turning around consumer perceptions.
Results are based on telephone interviews with 2,335 national adults, aged 18 and older, conducted Jan. 2-4, 2008. Other results are based on telephone interviews with 2,336 national adults, conducted Jan. 27-Feb. 1, 2008. For results based on these samples, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.
In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.