Eighty-five percent of U.S. employees say it is the "state of the economy," not "talk of war with Iraq," that is hurting their companies more, according to the latest Employee Outlook Index, a joint effort of UBS and The Gallup Organization*. By a margin of 71% to 28%, employees also say that they would opt for a 10% across-the-board pay cut, as opposed to a 10% across-the-board employee layoff at their companies.
Employee Confidence Is Plunging . . .
The February survey of employees at private sector, for-profit companies also shows employee confidence falling for the third consecutive month. The Employee Outlook Index fell eight points in February, following a six-point decline in January and a five-point decline in December. Since November, the Index has fallen 19 points, from 71 to its current level of 52. This is the Employee Outlook Index's lowest point since it was benchmarked in April 2002.
All three dimensions of the Employee Outlook Index decreased in February:
- The Present Company Conditions Index, which measures employees' confidence in the present conditions of their companies, decreased eight points, from 77 in January to 69 in February. This Index has now declined for three straight months, and is 17 points below its November level of 86. This places employee perceptions of how their companies are currently doing in the marketplace at their lowest point since the Index's inception.
- The Future Company Conditions Index decreased to 50 in February, down 11 points from January (61) and 20 points from December (70). Employees' expectations concerning the future of their companies are now also at their lowest point since measurement began last April.
- The Job Security Index decreased five points in February, from 42 to 37. The Job Security Index has also declined steadily over the past three months, falling 15 points since its November level of 52. Like the other two indexes that that make up the Employee Outlook Index, the Job Security Index is at its lowest point since its inception.
. . . But Economic Concerns May Be Obscured by the Fog of War
Although the public's attention is clearly focused on the potential for war with Iraq, these latest Employee Outlook Index results strongly support the view that war worries are not the chief source of plummeting consumer, investor, and employee optimism. The U.S. economy's failure to mount anything approaching a real economic recovery is creating a crisis of confidence among consumers, investors, and employees.
However, if you believe that the current crisis of confidence is largely war-related, then you may agree with Fed Chairman Alan Greenspan. The chairman has created a political stir in the nation's capital with his argument that the economy doesn't seem to need a fiscal stimulus at this point in time -- a position that has damaged the Bush administration's drive for tax cuts.
Of course, the Fed and many on Wall Street may be right that a post-war rally effect is all the U.S. economy needs to get a strong recovery going later this year. On the other hand, Gallup's economic data suggest that confidence among both consumers and investors is now substantially below post-Sept. 11, 2001 lows. And the rally effect that followed that terrible day did not produce a significant and sustainable economic recovery.
The fog of war is making it hard for many to recognize that a crisis of confidence currently exists in our economy. In turn, the resulting economic policy paralysis does not bode well for American businesses or their employees in the immediate-term. By the same token, despite what many economic prognosticators and policy-makers have suggested, an economic recovery is not a sure thing once the economic fog lifts.
*Results are based on telephone interviews with 669 adults who are employed with non-governmental, for-profit companies having five or more employees, aged 18 and older, conducted Feb. 3-6, 2003, and Feb. 17-19, 2003. For results based on the total sample, one can say with 95% confidence that the maximum margin of sampling error is ±4%.
