The U.S. economy is grappling with an oil shock, economists are fretting over a "runaway budget deficit," and pundits remind Americans at every opportunity that the United States does not have a clear exit strategy for a struggle in Iraq that has so far cost well over $150 billion. But what do American investors themselves say is doing the most harm to the investment climate?
As a part of the most recent survey of investors conducted by Gallup and UBS*, Gallup asked investors to rate the extent to which different factors were affecting the investment climate. Investors, in equal proportions, say the rising price of oil and gas and the outsourcing of jobs to foreign countries are most damaging; 56% say each is hurting the investment climate "a lot." Earlier polls showed energy prices alone were hurting the climate the most, but the percentage of investors saying the prices are hurting the climate this much decreased in September -- putting it on equal footing with outsourcing.
The good news is that on at least a few issues -- energy prices, questionable accounting practices, and the threat of terrorism -- investors are less likely to view these as threats to the investment climate today than they were in May. But on the highest-profile issues -- the situation in Iraq, the budget deficit, and the outsourcing of jobs -- perceptions of these as harmful to investment prospects have held steady.
Interestingly, even as the Federal Reserve continues to raise rates in the face of these problems, most investors are not terribly concerned about the rising rate environment -- with only 14% saying that interest rates are hurting the investment climate a lot. Similarly, though pundits are everywhere arguing about the effects a George W. Bush or John Kerry win would have on the economy, most investors don't see this election uncertainty as extremely damaging as far as investments are concerned. Only 20% of investors say the uncertainty is hurting the investment climate a lot.
What's Bothering the Average Investor?
The UBS/Gallup Index of Investor Optimism classifies investors as "substantial" (those with $100,000 or more of investable assets) and "average" (those with less than $100,000 of investable assets). Comparing concerns among these two investor types, there are three issues on which opinion diverges. Average investors express considerably more concern than their more affluent counterparts do about the outsourcing of jobs to foreign countries (61% of average investors say it is hurting "a lot" versus 46% of substantial investors). Average investors are somewhat more likely than substantial investors to say that general economic conditions (31% vs. 22%) and the threat of more terrorist attacks (41% vs. 34%) are hurting the climate a lot.
Bottom Line
The issues that continue to bother investors most are energy prices, outsourcing, the Iraq war, and the federal budget deficit. The situation in Iraq has been one of the key issues in the election debates, and it is also an issue that half of American investors say could hurt the investment climate. While public policy and free markets can address some of the problems that oil shocks and job outsourcing cause, the escalating implications of a foreign war are less transparent or manageable. Investors have not lost sight of this fact, and the Iraq issue may remain high on their list of concerns well after the election.
*Results for the total dataset are based on telephone interviews with 809 investors, aged 18 and older, conducted Sept. 1-19, 2004. For results based on the total sample of investors, one can say with 95% confidence that the margin of sampling error is ±4 percentage points.
