The IBD/TIPP Economic Optimism Index jumped 6.6 points to 44.7 in September, as recession worries eased, gas prices fell and the Biden administration moved to forgive up to $20,000 in federal college loans. It was the second biggest one-month jump in optimism in more than a decade, topped only by October 2020, when Americans cast aside Covid pessimism amid a rapid jobs rebound and vaccine progress.
Still, a solid majority of Americans — 59% — think the U.S. economy is in a recession, the new IBD/TIPP Poll finds. That's a step down from 62% in August, which followed a steady climb from 48% in May to 53% in June and 58% in July.
As inflation cancels out wage gains, pessimism maintained its grip for a 13th straight month. Readings above the neutral 50 level reflect optimism.
However, younger adults suddenly turned optimistic, with student loan forgiveness likely playing a role. The U.S. Economic Optimism Index leapt 12.6 points to 55.3 among those age 18-24, and 8 points to 51.7 for the 25-44 group. Gains were more moderate among those 45-64 (3.6 points to 37.6) and those 65 and up (6 points to 39.1).
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 September, the six-month outlook for the U.S. economy jumped 6.9 points to a still-gloomy 39.5. In June, this subindex had fallen to 30.6, the lowest level since July 2008, when the country was mired in a recession.
The personal finances subindex rose 5.5 points to 52. Before a modest bounce in August, July's 45.3 reading was the weakest 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 surged 7.4 points to 42.7 after sinking in August 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.
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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 August jobs report, which showed the U.S. economy added 315,000 jobs for the month. The unemployment rate rose to 3.7% from 3.5%, but only because more people came off the sidelines and started looking for work. Meanwhile, the average hourly wage rose a strong 5.2% from a year ago.
Yet the rise in consumer prices is eating away all those wage gains, and then some, for most Americans. With gas prices steadily falling over the past few months, the inflation rate has come down from a 40-year high of 9.1% in June. However, the consumer price index still rose 8.3% in August vs. a year earlier.
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The IBD/TIPP Poll finds that just 22% of adults say their wages have kept pace with inflation, while 51% say they haven't kept pace. Meanwhile, 90% of Americans are concerned about the path of inflation over the next 12 months.
However, the share of Americans worried about gasoline prices fell to 39% vs. 50% in August and a peak of 59% in June.
The IBD/TIPP Financial-Related Stress Index dipped nine-tenths of a point to 67.6 in September. That's still not too 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 42% of households have at least one member who is out of work and looking for employment, up 2 points from August. Now 34% are concerned about job loss in the household, up 3 points on the month. Factoring in the overlap, the share of job-sensitive households is currently 55%, up 4 points.
Investors Turn Bullish On U.S. Economy
The U.S. Economic Optimism gauge vaulted 10.2 points to 54.5 among self-described investors, returning to bullish territory, after falling to a 6-year low in August.
The rebound in sentiment came despite a rough ride for stocks in recent weeks, since Federal Reserve chief Jerome Powell signaled interest rates would stay higher for longer. However, market sentiment improved ahead of Tuesday's consumer price index report, which was expected to show a second month of tame inflation.
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Investors remain far more upbeat than noninvestors. Among noninvestors, the IBD/TIPP index rose 5 points to 39.8, solidly pessimistic.
The September IBD/TIPP Poll reflects online surveys of 1,277 adults from Sept. 7-9. 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.
