Investors turned bullish on the outlook for the U.S. economy over the past month, mirroring the S&P 500's current rally, even as noninvestors remained in a deep funk, the new IBD/TIPP Poll finds.
The overall IBD/TIPP U.S. Economic Optimism Index rose 1.8-points to 45.1 in February. That put the index at a 10-month high, but still in pessimistic territory, below the 50 neutral level, for an 18th straight month.
Now 53% of adults polled think the U.S. economy is in a recession, down from 55% last month. That figure reached 61% in October.
Investors, Noninvestors Divided On U.S. Economy
Among investors, the U.S. Economic Optimism gauge jumped 7.5 points to a solidly optimistic 57.1 However, pessimism deepened among noninvestors, as the IBD/TIPP economic index slipped 1.8 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.
Investors have had reason to smile as the S&P 500 climbed 6.2% in January, while the Nasdaq rallied 10.7%. There have been a series of bear-market rallies, but there's some cause for hope that this rally could be for real. 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.
The S&P 500 touched a five-month high last week, after Federal Reserve Chair Jerome Powell hailed inflation's retreat from above 9% in June to 6.5% in December and sounded upbeat about prospects for the U.S. economy skirting a recession.
The biggest positive for the Fed and investors is that wage growth has slowed to 4.4% from a peak of 5.9% last March. Yet even as wage growth approaches the Fed's goal of about 3.5%, hiring has remained solid.
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However, noninvestors have less reason to celebrate. Inflation still exceeds wage growth, meaning that the buying power of the average hourly wage continues to fall.
The IBD/TIPP Poll finds that 27% of adults say their wages have kept pace with inflation, up from 21% in January. Meanwhile, 48% say wages haven't kept up with inflation, down from 52%. Improvement over the past month was almost strictly among those earning above $75,000 per year.
The IBD/TIPP Financial-Related Stress Index rose 1.1 points to 65.8, a three-month high. Readings above 50 mean financial stress is rising. The financial stress index had been just below 50 before the pandemic, then shot to a record 69.8 in April 2020.
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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 January, the six-month outlook for the U.S. economy rose 3.5 points to a still-gloomy 39.7. In June, this subindex got as low as 30.6, the lowest level since July 2008, when the country was mired in a recession.
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The personal finances subindex rose 2.7 points to 52.6, striding back into optimistic territory. 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 in July 2021, before inflation took off.
The gauge of support for federal economic policies rose 2.4 points to 43.1. The gauge, which hit an eight-year low of 35.3 in August, got as high as 56.4 in June 2021, 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.
The February IBD/TIPP Poll reflects online surveys of 1,358 adults from Feb. 1-3. 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.
