A solid majority of Americans — 62% — think the U.S. economy is in a recession, up from 58% a month ago, 53% in June and 48% in May, the new IBD/TIPP Poll finds. Meanwhile, the IBD/TIPP Economic Optimism Index, an early month read on consumer confidence, slipped fourth-tenths of a point to 38.1, matching June's reading for the lowest since August 2011.
As inflation cancels out wage gains, pessimism maintained its grip for a 12th straight month. Readings above the neutral 50 level reflect optimism.
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 and personal finances, along with support for government economic policies.
In August, the six-month outlook for the U.S. economy edged up four-tenths of a point to 32.6. In June, this subindex hit is lowest level since July 2008, when the country was mired in a recession. Back-to-back monthly gains since then are somewhat encouraging, but the near-term economic outlook remains deeply pessimistic.
The personal finances subindex rose 1.2 points to 46.5. That's a modest bounce after July's reading flashed the lowest level in the history of the IBD/TIPP Economic Optimism Index dating back to February 2001. Views of personal finances had reached a bullish 59.7 last July.
The gauge of support for federal economic policies slid 2.7 points to 35.3, sinking to the lowest level since January 2014. That gauge got as high as 56.4 last June, after more rounds of stimulus checks and amid a big push for more expansive policies from President Biden. Now, however, stimulus has lapsed and the Federal Reserve is hiking interest rates to try and rein in the inflation to which stimulus contributed. So far, a flurry of legislation, including a bill to boost domestic chip production and the Inflation Reduction Act, which stands on the cusp of passage, has yet to make a positive impact.
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Is The U.S. Economy In A Recession?
Recession views may have gotten a bump for the second-quarter GDP report, which showed the U.S. economy shrank for a second-straight quarter.
Still, the glum outlook seems at odds with the July jobs report, delivered on Aug. 5, which showed the U.S. economy added a hefty 528,000 jobs for the month as the unemployment fell to 3.5%, matching a half-century low. Meanwhile, the average hourly wage rose a strong 5.2% from a year ago.
The reported strength of the labor market seemed to debunk the notion that the U.S. economy is in a recession. But that data is subject to revision and the bigger picture is more muddled. The Labor Department's employer survey has shown an increase of 1.7 million jobs over the past four months, while the household survey shows 168,000 fewer Americans are working. Meanwhile, new claims for jobless benefits have spiked more than 50% since mid-March.
The biggest problem is that the rise in consumer prices is eating away all those wage gains, and then some, for most Americans. The consumer price index rose 9.1% from a year ago in June, the biggest increase in 40 years. However, with gas prices pulling back since mid-June, July's inflation rate should be lower.
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The IBD/TIPP Poll finds that just 17% of adults say their wages have kept pace with inflation, while 54% say they haven't kept pace. Meanwhile, 90% of Americans are concerned about the path of inflation over the next 12 months.
The IBD/TIPP Financial-Related Stress Index dipped 0.8 point to 68.5 in August. That's still not far off April 2020's 69.8 record high in polling going back to December 2007. Readings above 50 mean financial stress is rising.
Despite labor market tightness, the IBD/TIPP Poll finds that 40% of households have at least one member who is out of work and looking for employment, down 1 point from July. Now 31% are concerned about job loss in the household, down 5 points on the month. Factoring in the overlap, the share of job-sensitive households is currently 51%, down 2 points from July.
Investors Grow Bearish On U.S. Economy, Despite S&P 500 Rally
Investors' economic views softened over the past month, despite moderating oil prices and a rallying S&P 500.
The U.S. Economic Optimism gauge slid 4 points to 44.3 among self-described investors, a fourth straight month in pessimistic territory and the lowest level since September 2015. IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
In July, the Dow Jones rallied 6.7%, the S&P 500 9.1% and the Nasdaq composite 12.35%. Still, as of Monday's close, the Dow was down 9.65% for the year. The S&P 500 has fallen 13.1% and the Nasdaq has lost 19.2%.
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Investors still remain far more upbeat than noninvestors. Among noninvestors, the IBD/TIPP index rose 1.3 points to 34.8, deeply pessimistic.
The August IBD/TIPP Poll reflects online surveys of 1,335 adults from Aug. 4-6. The results come with a credibility interval of +/- 2.8 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
