U.S. Economic Confidence Plummets As 63% Believe Economy Is Getting Worse – Financial Freedom Countdown

The Gallup Economic Confidence Index, reflecting American sentiment on current economic conditions, fell to -27 in August. Despite remaining negative, this is the index’s highest reading since March.

Over Two-Thirds Say Economic Outlook Is Declining

For over three years, Americans have consistently been more pessimistic than optimistic about the economy, dating back to the start of high inflation in 2021.

However, this month saw a seven-point increase in the percentage of Americans who believe the economy is ‘getting better,’ rising to 31%. This is one of only three instances since 2021 where optimism has surpassed 30%, alongside earlier this year.

Despite this, 63% still believe the economy is ‘getting worse.’

Gallup’s Economic Confidence Index offers a measure of American sentiment toward current economic conditions—ranging from excellent to poor—and their expectations for its trajectory, improving or worsening.

Political Views Bias Economic Confidence Surveys

As often observed, there is a significant divergence in economic evaluations between supporters of the president’s party and the opposition, with the former typically more positive.

National economic confidence remains negative overall, with a particularly deep pessimism among Republicans and Republican-leaning independents.

In contrast, economic sentiment has been modestly positive among Democrats and Democratic-leaning independents for most of Joe Biden’s presidency.

Over the past month, this positivity has increased slightly among Democrats, rising from +16 to +21, coinciding with Vice President Kamala Harris taking on a more prominent role in the 2024 election.

This improved confidence among Democrats reflects a growing optimism about the economy’s direction, with more Democrats and Democratic-leaning independents now believing it is improving.

Meanwhile, Republicans and Republican-leaning independents have shown little change in their views.

Economy and Inflation Climb on U.S. ‘Most Important Problem’ List

Economic confidence may be stronger this month, but more Americans are highlighting economic issues as the top problem facing the country.

Concerns primarily center on the overall economy, which rose to 18% in August from 13% in July, and inflation, which increased to 15% from 13%.

Smaller percentages of Americans are focused on issues like unemployment, financial insecurity, income inequality, the federal budget deficit, or other economic factors.

Overall, 41% of Americans now cite one or more economic concerns, a significant increase from 33% in July and the highest rate this year.

The general economy is now nearly tied with immigration (19%) as the most frequently mentioned specific issue. In contrast, mentions of government as the top problem have decreased significantly, dropping 10 points to 16% in August.

Inflation Has Been a Top Concern

For the third consecutive year, the proportion of Americans identifying inflation or high living costs as their family’s top financial problem has hit a new peak. This year, 41% cite the issue, a slight increase from 35% last year.

The latest findings come from Gallup’s annual Economy and Personal Finance poll, conducted between April 1 and 22, 2024. Since 2005, Gallup has asked Americans annually to name the top financial problem facing their family without prompting.

Inflation has been the leading concern for the past three years.

Other Financial Problems

This year, the cost of owning or renting a home follows inflation as the second most pressing issue at 14%, a new high for this category.

Other major concerns Americans mention include excessive debt (8%), healthcare expenses (7%), low wages or lack of funds (7%), and energy costs or gas prices (6%).

The increase in cost of owing and renting homes has crushed average Americans. 

Zillow’s recent research report sheds light on the reality facing today’s homebuyers, indicating a significant shift in the financial landscape since 2020. To afford a home in the current market, individuals need to earn $47,000 more than they did just a few years ago, pushing the required annual income to over $106,000.

Redfin’s recent research, which delved into housing and income statistics, mirrors these findings, highlighting the widening gap between home affordability and average earnings. Their analysis reveals that the average household’s income falls short by about $30,000 of what is necessary to purchase a median-priced home in the U.S.

To afford such a home today, a buyer must earn $114,000 annually—35% more than what the typical household earns.

Surging Transportation and Food Costs Crushing Americans

Between 2019 and 2023, the all-food Consumer Price Index (CPI) surged by 25 percent, surpassing the growth rate of the all-items CPI, which stood at 19.2 percent during the same period.

While food prices saw a rise lower than the 27.1 percent increase in transportation costs, they outpaced the upticks in housing, medical care, and all other primary categories.

Demographic Breakdown of Inflation Concerns

Inflation is the top financial concern across all major societal groups, though certain age, income, and political segments express higher levels of concern.

Among older Americans (50+), 46% cite inflation as their primary worry, compared to 36% of younger Americans (under 50).

Middle-income earners (46%) and upper-income earners (41% of those making $100,000 or more annually) are more concerned about inflation than lower-income individuals (31% of those with incomes under $40,000).

The issue is most pressing for Republicans, with 56% naming it their top financial problem, followed by 39% of independents and 26% of Democrats.

Concerns About Maintaining Standard of Living

Retirement and medical emergencies are additional sources of concern. A separate survey question asks Americans to rate their level of worry about eight specific personal financial issues, not including inflation.

However, inflation’s impact is seen in the increased percentage of those anxious about maintaining their standard of living.

Fifty-five percent express significant or moderate worry about sustaining their lifestyle, marking the third consecutive year where a majority has held this concern.

Social Security and Medicare Insolvency

Concerns about maintaining one’s standard of living rank among the top three economic worries for Americans, alongside fears of insufficient retirement savings and the inability to cover medical expenses in case of a serious illness or accident.

The Trustees of Social Security and Medicare unveiled their yearly financial forecasts for both programs, looking ahead over the next 75 years. The newly released projections for Social Security paint a grim picture of rapid progression towards insolvency in 10 years, underscoring the urgent need for trust fund remedies to avert widespread benefit reductions or sudden adjustments in taxes or benefits.

Perceptions of Personal Finances Stay Low

Forty-six percent of Americans view their personal finances as excellent or good, consistent with the past two years’ figures but worse than the assessments recorded from 2017 to 2021.

Americans Say Their Finances Are Deteriorating

47% now believe their financial situation is worsening, marking a 17-point increase since 2021.

Inflation remains a significant concern for Americans and may explain why fewer than half feel optimistic about their financial situation. It’s not only seen as the most pressing financial problem for families, but it also ranks high among the domestic issues Americans worry about most.

Inflation is only surpassed by concerns over immigration, government, and the economy as a whole when Americans are asked about the nation’s most critical problems.

Although the U.S. inflation rate has decreased notably from its 2022 peak, this improvement hasn’t changed Americans’ views on their finances.

The lingering effect of higher prices over recent years, coupled with inflation staying above the lower rates seen between 2012 and 2020, could be influencing these perceptions. Recent government reports suggest inflation might be on the rise again, which has led the Federal Reserve to postpone expected interest rate cuts this year.

Job Outlook Deteriorates

Gallup regularly surveys Americans about the job market, distinct from the Economic Confidence Index.

Currently, 45% of Americans view it as a good time to find a quality job, while 50% believe it is a bad time.

This month’s figure represents a four-point drop from April and continues a decline from the 64% recorded in January 2023.

The latest reading, taken after the government reported a rise in the unemployment rate in early August, is the lowest Gallup has recorded since April 2021, when 43% rated the job market positively.

Revision of Jobs Data Concerning

The labor market seems to be losing momentum, heightening concerns that businesses are hesitant to hire as rising interest rates dampen investment and uncertainty lingers over consumer demand.

In August, employers added 142,000 jobs on a seasonally adjusted basis, the Bureau of Labor Statistics reported on Friday. This marks a weaker-than-expected result for the second month in a row.

Additionally, job totals for June and July were revised downward by a combined 86,000 positions, dragging the three-month average to just 116,000 jobs—a significant signal that hiring is slowing. This downward revision comes on the heels of another massive revision a few weeks ago.

The U.S. economy created 818,000 fewer jobs than originally reported in the 12 months leading up to March 2024, the Labor Department revealed on August 21st.

In its preliminary annual benchmark revisions to the nonfarm payroll numbers, the Bureau of Labor Statistics indicated that actual job growth was nearly 30% lower than the initially reported 2.9 million jobs from April 2023 to March 2024.

Election Implications

The declining economic confidence index highlights Americans’ mounting concerns over inflation, financial stability, and the broader economy. As pressures on household finances persist, political leaders and policymakers must address these issues to restore confidence. The sustained worries could play a significant role in shaping the outcome of the upcoming elections and future economic policies.

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