U.S. economic confidence had been declining throughout the month of September as a federal government shutdown loomed. From a reading of -13 at the end of August the index fell to -24 on September 30th and has plunged to a three-day rolling average of -34 on October 3rd. That’s the lowest reading since September 2011 when the U.S. faced a default on its federal debt.
As the October 17th date for a default gets closer it is probably safe to assume that the economic confidence reading still has some distance to fall. The U.S. Treasury’s report on the macroeconomic effects of a potential default was released on Thursday, calling the threat of a default “catastrophic.”
How much lower economic confidence might fall over the days and weeks ahead depends on what the Congress ends up doing in regard to both the current government shutdown and the looming debt ceiling deadline on Oct. 17. One glimmer of more positive news is the fact that after a similar plummet in confidence during the August 2011 debt ceiling crisis, confidence regained its previous footing within several months.
Given the news out of Washington, we are unlikely yet to have seen the bottom to Americans’ confidence in the economy.