Summary
The Economic Optimism Index in the United States displayed a downward trend in March 2025, accompanied by a similar decrease in small business optimism. Such pessimism can have considerable impact on the economy, causing households to save more and firms to hire less, leading to fluctuations in output, employment, and prices. Various factors influence this economic outlook, including political affiliations, which have been shown to significantly influence individuals’ expectations. In addition, concerns about high inflation and potential interest rate hikes could exacerbate the decline in economic optimism.
Cuts to Federal Programs proposed in recent budget proposals could create major disruptions in essential public services, affecting health care, education, and food assistance sectors. These cuts would potentially require states and localities to take on more costs, which could result in a significant decrease in federal support for public education. Besides, they could trigger wide economic instability and substantial job losses, which may further decrease overall economic optimism.
The potential impact of these cuts is not limited to immediate recipients of the services. A study projects significant losses in jobs and a significant decline in states’ gross domestic products if cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP) are implemented. Such reductions could potentially lead to economic losses across different sectors of state economies.
Further, cuts to essential services programs could deepen economic hardship for families, particularly if these cuts target programs such as SNAP. Anticipated impacts also extend to public sentiment as lower-income individuals, who are less optimistic about their future financial status, may anticipate being worse off within a year. The potential cuts to federal programs could undermine not only the economic stability of states and localities, but also the economic optimism of millions of Americans.
Decrease in Economic Optimism
The Economic Optimism Index in the United States exhibited a decline in March 2025, dropping from 52 points in February to 49.80 points. In addition, the National Federation of Independent Business’ small business optimism index also experienced a decrease in January and February of the same year, indicating a decrease in business confidence amidst increasing uncertainty.
Americans’ economic and financial future outlook varies significantly and is influenced by several factors, including race, age, employment, state of residence, and economic factors like employment status, income, and savings level. Furthermore, people’s perceptions of their economic conditions can impact their decisions, such as whether to save or invest.
Expectations about the future play a crucial role in shaping the economy. A more pessimistic outlook can lead households to save more and firms to hire less, leading to aggregate fluctuations in output, employment, and prices. In contrast, a positive outlook, reflected in the Q1 2024 US economic forecast, indicates optimism despite geopolitical risks and inflation concerns. However, this optimism is declining due to the adverse effects of COVID-19 lockdowns.
Another critical aspect of the decline in economic optimism is the influence of political affiliation. Individuals identifying themselves as Republicans displayed a significant increase in economic optimism from November 2016 to January 2017, whereas Democrats exhibited a marked decrease in economic optimism over the same period. The party controlling the White House significantly impacts individuals’ economic expectations. This party polarization impacts individuals’ outlook on future economic conditions, and these biases in survey-based measures of economic expectations have significantly increased over time.
Despite this, some economists worry that continued high inflation and interest rate hikes designed to slow it could lead to an economic recession. These concerns could further dampen the overall economic optimism in the United States.
Potential Impact of Federal Program Cuts
Federal program cuts, as proposed in recent budget proposals, could cause significant upheavals in essential public services, affecting millions of individuals. These proposals target crucial areas such as health care, education, and food assistance . These reductions would require states and localities to absorb more of the costs, such as by paying for a larger share of Medicaid costs or increasing funding for public education . Notably, cuts could lead to a substantial decrease in federal support for public education, potentially diverting funds from public education to private schools .
The potential impact of these cuts extends beyond the immediate recipients of the services, triggering wider economic instability and substantial job losses. A report from the Commonwealth Fund and the George Washington University Milken Institute School of Public Health projects that cuts to Medicaid and the Supplemental Nutrition Assistance Program (SNAP) could result in a loss of over a million jobs and a $113 billion decline in states’ gross domestic products, along with a $8.8 billion loss in state and local tax revenue in 2026 alone . Healthcare and food-related industries could bear the brunt of the impact, potentially leading to the elimination of around 477,000 healthcare jobs due to reduced Medicaid enrollment and revenue losses for healthcare providers . Furthermore, an estimated 411,000 jobs could be lost in other businesses due to the ripple effects of these cuts through state economies .
The broad-based cuts, if spread proportionately across all states and evenly over the decade, could result in the loss of about $95 billion in states’ gross domestic products, and even greater losses in total economic output ($157 billion) . These estimates take into account the ripple effects of the cuts across different sectors of each state’s economy. For instance, reductions in SNAP benefits might force families to reallocate funds from other essentials like rent, clothing, or utilities to buy enough groceries, causing economic losses due to reduced spending on those goods .
Deep cuts to programs offering essential services could further embed families in economic hardship, particularly if most of these cuts are directed at programs such as SNAP . Potential impacts also extend to public sentiment, as individuals with low income are less optimistic about their future financial status, and may anticipate being worse off within a year . Therefore, the proposed cuts to federal programs not only have potential to undermine the economic stability of states and localities, but also to erode the economic optimism of millions of Americans .
The content is provided by Sierra Knightley, Fact-Nest
