After scoring plus 3 in January, the first positive reading in seven years, Gallup's Economic Confidence Index edged down to plus 1 in February. The reading last month is still the second-highest monthly average since Gallup began tracking confidence on a daily basis in 2008.
Gallup's Economic Confidence Index is the average of two components: Americans' ratings of current economic conditions and their views on whether the economy is getting better or getting worse. The index has a theoretical maximum of plus 100, if all Americans believe the economy is excellent or good and getting better; and a theoretical minimum of minus 100, if all Americans say the economy is poor and getting worse.
In Gallup Daily tracking throughout February, an average 27 percent of Americans said the economy was "excellent" or "good," while 27 percent said it was "poor." The resulting "0" current conditions score compares with plus 1 in January. Meanwhile, the economic outlook score decreased by three points to plus 2, based on 49 percent of Americans saying the economy is "getting better" and 47 percent "getting worse."
The modest drop in Americans' economic confidence in February reflects significantly different readings in the two halves of the month. Americans' economic confidence indexed at plus 3 in each of the first two weeks of the month -- on par with the January average -- but was followed by a five-point drop to minus 2 in the third week of the month, and remained at that level last week.
The shift in the last two weeks of February marks the largest downturn in weekly economic confidence since last July. Although there are a number of possible causes for the drop, one probable explanation is the higher prices consumers are seeing at the gas pump, an unwelcome turn after seven months of declining gas prices. The average price per gallon of regular unleaded gas nationally rose three cents in the first week of February, then 12 cents in the second week, eight cents in the third and six cents in the fourth -- 29 cents in total.
Gas prices started going up at least a week before Americans' economic confidence began to sink, suggesting if there is a relationship between the two, it could depend on the cumulative effect after a series of short-term increases.
On the other hand, the stock market had its best month in more than three years in February, with the Dow Jones rising 5.6 percent and the Nasdaq up 7.1 percent. Thus, among the many economic signals consumers may respond to, rising gas prices appeared to overshadow rising stocks in February.
The trend toward rising economic confidence halted in February. Gallup's index fell out of positive territory at mid-month, resulting in a monthly decline from January. This is the first time since last July that monthly confidence declined to any degree. According to Gallup, with experts predicting that gas prices will continue to rise into the spring because of reduced production at U.S. refineries, and assuming gas prices affect how Americans look at the economy, it could be difficult for economic confidence to recover its recent momentum without significantly positive economic news elsewhere.
Gallup's Economic Confidence Index is a composite of two questions that Gallup asks daily of a nationally representative sample of 500 adults, aged 18 and older, and reports weekly based on approximately 3,500 interviews. One question asks Americans to evaluate current economic conditions; the other measures their perceptions of whether the economy is getting better or getting worse. The two questions have equal weight in the index, and are reported without revisions or seasonal adjustments. They can also be analyzed separately, providing insight into changes in the overall index. The survey is conducted with respondents contacted on landlines and cellphones
In today's fast-moving, information-loaded environment, consumer attitudes can, and often do, change multiple times between the beginning and the middle or end of a month, and the Gallup index keeps up with these fluctuations. Followers of the metric therefore develop a keen understanding of the degree to which various economic and political events -- including monthly BLS jobs reports, major changes in the stock market, and significant congressional budget actions -- affect consumer attitudes.
Investors are highly sensitive to consumers' mindset as a potential leading indicator of consumer spending behavior. The Gallup index provides a timely reading of consumer attitudes, facilitating precise evaluations of consumers' mood and the drivers of consumer attitudes. The index gives investors a valuable tool to help predict what the other indexes will report each month, which in turn can help investors anticipate any major stock market reactions.
Econoday reports monthly data. Gallup reports results of the ECI on Gallup.com on a daily, weekly, monthly and quarterly basis.
The Gallup Economic Confidence Index has a possible maximum of plus 100 (reached if all Americans rate current economic conditions as excellent or good, and all Americans say the economy is getting better) and a possible minimum of minus 100 (reached if all rate the current economy as poor, and say the economy is getting worse). The zero midpoint indicates either neutral or mixed attitudes about the economy. Gallup has asked the component questions periodically since 1992, monthly since October 2000, and daily since January 2008. Since 1992, the index has ranged from a high of plus 56 in January 2000, coincident with a period of robust U.S. economic performance and a balanced federal budget, to a low of minus 65 in October 2008, during the global financial crisis.