Yongpeng Sun-Tastaufen
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Economic Pessimism Tops Pandemic Peak On Inflation Fears
Even investors are barely optimistic.
www.investors.com
Americans have grown more pessimistic about the outlook for the U.S. economy than at any point in the Covid era, the November IBD/TIPP Poll finds. With the delta variant slowing the jobs recovery and inflation fears mounting, household financial stress is spiking and faith in federal economic policies is sinking.
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The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, fell deeper into pessimistic territory, slumping 2.9 points to a six-year-low 43.9. That just undercut the prior pandemic low of 44 in July 2020, as the second Covid wave was hitting. Readings above the neutral 50 level reflect optimism.
While political partisanship tends to color views of the economy, the Economic Optimism Index reading for independents slid 2.6 points to an eight-year low of 37.2.
U.S. Economic Optimism Index Components
The IBD/TIPP Economic Optimism Index is a composite of three major subindexes. They track views of near-term prospects for the U.S. economy, the outlook for personal finances and views of how well government economic policies are working.
In November, the six-month U.S. economic outlook index sank 2.7 points to 38.6, the lowest since July 2020.
Inflation worries weighed on the personal finances subindex, which fell 2 points to a 14-month low of 51.9, despite the S&P 500 closing the month at a record high.
Dimming faith in federal economic policies was the biggest drag, as the federal policies subindex fell 4.2 points to 41.1. That was the lowest since January 2016.
Biden Job Approval Slides As Presidency Arrives At Key Turning Point
U.S. Economy's Covid Recovery
The Covid jobs recovery slackened in August and September, as the U.S. economy gained an average of 280,000 per month, after employer payrolls ballooned by about 1 million jobs in each of the prior two months. The October jobs report out on Friday at 8:30 a.m. ET is expected to show that the U.S. economy added 400,000 jobs.
Pandemic jobless benefits, including an extra $300 in weekly support, expired nationwide on Labor Day, after earlier expirations in 26 states whose governors aimed to coax available workers off the sidelines to ease a labor shortage.
Inflation Fears Stress Americans
The IBD/TIPP Financial Related Stress Index rose 3.3 points to 67.3, the highest since April 2020, just before the first stimulus checks went out. Readings above 50 indicate rising stress. The financial stress index fell to a Covid-era low of 56.8 in early April, after most Americans received their third stimulus check.
A surge in inflation is contributing to financial stress. The consumer price index rose 5.4% from a year ago in September. The IBD/TIPP Poll finds that 83% of Americans are concerned about the path of inflation over the next 12 months, including 92% of seniors. Starting in January, seniors will get a 5.9% cost-of-living increase from Social Security.
Wage gains are helping to offset inflation pressures. The September jobs report showed that annual wage growth accelerated to 4.6% as employers bid for scarce labor.
The jobs recovery still has a long way to go. The IBD/TIPP Poll finds that 42% of households have at least one member who is out of work and looking for employment, up 1 point from October. Another 33% are concerned about job loss in the household, down 2 points on the month. Factoring in the overlap, the share of job-sensitive households is currently 54%, up 2 points from last month.
Investor Optimism Weighs
Despite record highs for the S&P 500, Dow Jones and Nasdaq at the end of October, investors were the biggest drag on the U.S. Economic Optimism Index. Among investors, optimism over the U.S. economy slid 4.3 points to 50.9, continuing a rapid descent from August's pandemic high of 65.4.
Last week, the White House released an updated framework for a $1.85-trillion social-spending package that would no longer rely on major increases in tax rates on capital gains, dividends and corporate income. Wall Street appeared to rally on the news.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
Still, investors remain far more upbeat than noninvestors. Among noninvestors, the IBD/TIPP index fell 2.3 points to 40.7, going deeper into pessimistic territory.
Through Monday's close, the S&P 500 is up 22.8% this year, while the Dow Jones is up 17.3% and the Nasdaq composite 21%.
Make sure to read IBD's daily afternoon The Big Picture column to get the latest read on the prevailing market trend and whether investors have a green light to buy quality stocks flashing a buy point.
The November IBD/TIPP Poll reflects online surveys of 1,306 adults from Oct. 27-Oct. 29. The results come with a credibility interval of +/- 2.8 points.
