“It is clear we have entered a new phase where the dysfunction and paralysis in Washington is having a significant and deleterious impact on how consumers feel about the overall state of the economy and their personal financial situations,” writes McInturff in an analysis entitled “The Washington Economy.”
As evidence of his assertion, McInturff cites the Michigan Consumer Sentiment Index in the months leading up to the “fiscal cliff” fight last winter. From October to December, consumer confidence dipped from 82.6 to 72.9. (The Michigan Index is based on a 100-point scale.) McInturff notes that the index typically moves only a point or two a month, and that such large-scale moves within such a short time typically require a “signal event” like Hurricane Katrina (a 19.6-point drop in two months), Iraq invading Kuwait (15.4-point drop) or the Lehman Brothers collapse (15-point drop).
The “fiscal cliff” debate (a 9.7 point drop) and the 2011 debt ceiling showdown (15.8) fit neatly into that category of signal events, a remarkable reflection of how what happens — or, more accurately, doesn’t happen — in Washington reverberates around the country. (One remarkable factoid: The drop in consumer confidence during the “fiscal cliff” debate was larger than the one that followed the Sept. 11, 2001, terrorist attacks.)
The Michigan Index is not alone in showing the drastic impact on confidence that the seemingly endless fiscal fights in Washington are causing. In the summer of 2011 — at the heart of the debt ceiling debate — Gallup’s Economic Confidence Index showed a score of -54. (The lowest possible number is -100, the highest is 100.) At the end of 2012, confidence dipped again in the Gallup measurement — down to -22.
Now, it’s not all doom and gloom. Of late, the Michigan Index has been showing increased public confidence, hitting a three-month high of 76.3 this month. And, the Gallup number reached as high as -8 earlier this month —a five-year high— before dipping back down to -13 last week.
But, a look at the longer trend suggests that the country is in the grips of a broader crisis of confidence that Washington is making worse. Looking all the way back to 2008 when Gallup began testing economic confidence, the organization has never — repeat, never — turned out a positive confidence score in its daily tracking polling. And, as McInturff notes, the country is now in the midst of a historically long run of low confidence. It has been 59 months since the Michigan Index dropped below 65 and it has never been back above 85. That’s the longest recovery period of any time since World War II; in 1974, amid the Watergate scandal, the Michigan Index dropped below 65, but 30 months later it was over 85 again.
Then consider that the sequester seems all but certain to kick in on March 1, the potential for a government shutdown on March 31, and the debt ceiling debate returning later this summer and it seems clear that the current bump in confidence is likely to be short-lived. Put another way: We may well be in the eye of an economic confidence hurricane.
What’s clear from all the data is that a federal government that lurches from financial crisis to financial crisis as its normal course of business is doing a great disservice to a country badly looking to finds its footing again.
“It is important leaders in both parties begin to recognize how the tenor, tone and the outcome of the policy debates in Washington are actually retarding economic confidence in a way that makes building a sustained recovery more difficult,” concludes McInturff.
The warnings, from the debt ceiling fight through the “fiscal cliff” crisis, are clear. But, political Washington has shown a remarkable inability to heed them in the past few years. If that doesn’t change in the next three months, the impact on the nation’s economy could be drastic.
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