World Economy

US Economic Confidence Dips

US Economic Confidence DipsUS Economic Confidence Dips
Wall Street’s short sellers are beginning to talk about healthcare system as the next major threat to the US economy

The confidence of Americans in the US economy tumbled into negative territory last week for the first time this year as their economic outlook soured. Gallup's US Economic Confidence Index was negative-1 for the week ending Oct. 15, down seven points from the previous week.

Last week's drop in Americans' overall confidence was largely driven by a more negative than usual assessment of the direction in which the economy is headed, Newsmax reported.

 “This could be related to the recent report by the Bureau of Labor Statistics, which found a loss of 33,000 jobs in September after a series of damaging storms in Florida, Texas and elsewhere.

Although the same report found the unemployment rate at a 16-year low, consumers may have been alarmed by the report of job losses. The drop last week could also be related to other factors and could represent a short-term shift that could quickly reverse course—as it did when the index reached zero in a July weekly average,” Gallup explained.

“If that bad news about jobs proves temporary, confidence is likely to recover—particularly if the stock market continues to maintain its recent gains. However, as is clear from the 2008-2016 trend, there is plenty of room for confidence to go lower should November bring a second consecutive month of discouraging labor news,” Gallup explained.

Gallup's US Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is improving or getting worse. The index has a theoretical maximum of +100 if all Americans were to say the economy is doing well and improving, and a theoretical minimum of -100 if all were to say the economy is doing poorly and getting worse.

Thirty-two percent of Americans described the economy as "good" or "excellent," while 23% described it as "poor," resulting in a current conditions score of +9—down from +14 the previous week. This is the first time since late July that this component has dipped below +10.

Though a first for 2017, the index has flirted with negative territory at several points in recent months—with a score of zero in late June, for example.

Parasite in the Economy?

Imagine a parasite living in the US economy, siphoning off the cash that has powered the middle class for decades. Everyone knows it's there, but no one—on the right or the left—is talking seriously about how to slow its growth, Business Insider reported.

This parasite is our healthcare system. It is already causing more damage to the economy than one knows, and at least one group of people seems to have this figured out: the same Wall Street doomsayers who predicted the financial crisis.

Wall Street's short sellers are beginning to talk about healthcare as the next major threat to the US economy.

Here's what they know, in the broadest terms. Healthcare spending took up 4.8% of consumer spending in 1984, hit 8% in 2014, and then surged to 10% by 2016, according to the Bureau of Labor Statistics.

Now of course there are some on Wall Street who see this as a reason to go long, with some companies poised to rake it in as baby boomers age and costly diseases like cancer proliferate.

But the crowd is focusing instead on what inefficiencies in pricing are doing to American wallets. They're looking at the bad actors in this healthcare system, the drug companies that are taking a 60-year-old medicine and jacking up the price, the middlemen that inflate costs by inserting themselves between patients and providers. This crowd has noticed that these bad actors are pervasive in the American system.

So the bet here is simple: America, one way or another, will be forced to confront the parasite that is its healthcare system, and the companies that are using the sleaziest tactics will be picked off first—by prosecutors, lawmakers, insurance companies, or the press—leaving sick customers in the lurch.

The government has no plan to rein in costs. Healthcare costs today make up a sixth of the economy; the centers for Medicare and Medicaid services estimate that the share will grow to a fifth in just eight years.

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