How the fall fiscal debates could make or break Americans’ economic confidence

August 27, 2013

If someone were to put together a soundtrack to welcome Congress back to Washington next month, it should begin with "Waiting for October" by Polaris.

Why? Because there are two big fiscal deadlines in coming in October. First, lawmakers must pass, and President Obama must sign a new continuing resolution to fund the government beyond Sept. 30, when the current spending bill expires. Second, the nation's borrowing authority will be reached in mid-October, setting up another showdown over raising the debt limit.

And if recent history is any predictor, an impasse could diminish Americans' confidence about the economy.

Consider the following chart from Gallup, which tracks economic confidence dating back to 2008. There are two big dips in confidence worth noting during the Obama presidency. One took place in the summer of 2011 during an intense standoff between Republicans and Democrats over the debt limit that was resolved at the 11th hour. A second smaller dip can be seen at the end of 2012, coinciding with the impasse over the fiscal cliff that was also resolved at the very last minute.

It's clear that Americans' views (Gallup's economic confidence index is based on what Americans think about the economy and whether they believe it is getting better or worse) can be shaped by the high-stakes fiscal debates in Washington. Which brings us to October.

Come the fall, a stalled debate over funding the government or raising the debt limit or both could produce a similar drop in economic confidence. A swift and sweeping agreement could produce the opposite affect. As Gallup notes, the economy is stronger than it was during the 2011 debt limit showdown, but gridlock still threatens to affect confidence, which has been trending down this summer, as the following chart shows.

The bottom line: For a sense of what economic confidence will be like around the country this fall, it's well worth tuning into what is going on at both ends of Pennsylvania Avenue.

Sean Sullivan has covered national politics for The Washington Post since 2012.
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Aaron Blake | August 27, 2013