The IBD/TIPP U.S. Economic Optimism Index slipped to an 8-month low in July as Americans remained deeply pessimistic. However, investors are an exception, as the S&P 500 and Nasdaq rally fueled by artificial-intelligence stocks restored a modest level of optimism.
The overall IBD/TIPP U.S. Economic Optimism Index slipped four-tenths of a point to 41.3, the lowest reading since last November. The index has remained in pessimistic territory, below the 50 neutral level, for 23 consecutive months.
Student Loan Payments
The gauge of support for federal economic policies dipped one-tenth of a point to 38.5. That put approval of federal economic policies at the weakest level since last August's eight-year low.
Support for federal economic policies had surged last September after President Biden announced the forgiveness of up to $20,000 in student loans. But those gains have now mostly evaporated.
The Supreme Court struck down Biden's loan forgiveness program on June 30. On top of that, the debt-ceiling deal in early June formalized an end to the moratorium on most student-loan payments that's been in place since April 2020.
After the Supreme Court ruling, Biden announced new plans to forgive student loans and reduce monthly payments. While those plans may not take effect for a year or more, officials said they will immediately raise the level of income borrowers must earn before being liable for student loan payments to about $33,000 per year. That could save many borrowers $1,000 per year in annual payments.
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Now 55% of adults polled think a U.S. recession is at hand. That's up from 51% in June and tied for the highest since last November. However, that figure got as high as 61% in October.
On Friday, the Labor Department reported that the U.S. payrolls added 209,000 jobs in June as the unemployment rate dipped to 3.6%.
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While the average hourly wage is up a strong 4.4% from a year ago, the July IBD/TIPP Poll finds that just 20% of adults say their wages have kept pace with inflation, while 55% say wages haven't kept up.
The IBD/TIPP Financial-Related Stress Index rose to 67.1 from June's 66.8, remaining historically high. Readings above 50 reflect rising stress. The financial-stress index was below 50 just before the pandemic in February 2020, then shot up to a record 69.8 in April 2020.
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Among investors, the U.S. Economic Optimism gauge bounced 2.9 points to 50.8, returning to optimistic territory. However, pessimism deepened among noninvestors, as the IBD/TIPP index fell 1.7 points to 36.4.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
The S&P 500 is up 14.85% for the year and 23.3% from the bear-market closing low on Oct. 12. The Nasdaq has climbed 30.8% year-to-date and 35.6% from its 2022 bottom. Be sure to read IBD's daily afternoon The Big Picture column to get the latest read on the prevailing stock market trend and what it means for your trading decisions.
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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 July, the six-month outlook for the U.S. economy rose one point to 35.5, still deeply pessimistic. However, this subindex got as low as 30.6 in June 2022, the lowest level since July 2008, when the country was mired in a recession.
The personal finances subindex fell 1.9 points to 50, the worst since January. The 45.3 reading in July 2022 was the most pessimistic in the history of the IBD/TIPP Economic Optimism Index, dating back to February 2001.
The July IBD/TIPP Poll reflects online surveys of 1,341 adults from July 5-7. The results come with a credibility interval of +/- 2.7 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
