Optimism about the U.S. economy continued to backslide over the past month, as the Federal Reserve aggressively hiked interest rates to rein in inflation.
The IBD/TIPP Economic Optimism Index fell 1.2 points to a dismal 40.4 in November. September's 6.6-point surge in optimism amid falling gas prices and student loan forgiveness now looks like a false dawn.
The index slipped to within 2.3 points of the 11-year low matched in August. It has been stuck in pessimistic territory, below the 50 neutral level, for 15 straight months.
Sharp economic pessimism is the backdrop for Americans as they head to the polls on Election Day. President Biden's approval rating remains deep underwater with Republicans expected to win back the U.S. House and quite possibly the Senate as well.
Generational Divide Over U.S. Economy
The Biden administration's move to forgive up to $20,000 in federal college loans has contributed to a big optimism gap between adults age 18 to 44 and those 45 and up. But younger adults turned less optimistic over the past month.
The IBD Economic Optimism Index reading among those age 18-24 and 25-44 averaged 49.5 in November, down from 53.9 in October, though still well above August's 43.2 reading, before President Joe Biden acted on student debt. Meanwhile, the index averaged 32.2 for those 45 and up in November vs. 31.5 and 33.6 in August.
U.S. Economy In A Recession?
The share of Americans who think the U.S. economy is in a recession eased to 58% from to 61% in October and 62% in August. Still, recession fears have mounted since May, when 48% of Americans believed a recession had begun.
Meanwhile, the IBD/TIPP Financial-Related Stress Index eased 1.7 points to 67.8 in November's poll. October's figure was just below April 2020's 69.8 record high in polling going back to December 2007. Readings above 50 mean financial stress is rising.
Job growth remained solid in October as employers added 261,000 workers, while annual wage growth is a strong 4.7%. Yet just 20% of adults say their wages have kept pace with inflation, while 50% say they haven't kept pace. Meanwhile, 88% of Americans are concerned about the path of inflation over the next 12 months.
Now 32% of adults are concerned about job loss in their household, down from 38% in October and 34% in September.
Biden Approval Rating Stays Stuck In The Mud
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 November, the six-month outlook for the U.S. economy fell 1.1 points to a gloomy 34.3. In June, this subindex got as low as 30.6, the lowest level since July 2008, when the country was mired in a recession.
The personal finances subindex edged up two-tenths of a point to 48.4. That's still only moderately above July's 45.3 reading, which 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.
The gauge of support for federal economic policies fell 2.6 points to 38.6. August's 35.3 reading was the lowest level since January 2014. That gauge 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.
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Investors Turn Bearish On U.S. Economy
The U.S. Economic Optimism gauge fell 3.8 points to 47.7 among self-described investors, reentering bearish territory after a two-month respite.
Moderate pessimism among investors comes amid a rough ride for stocks, as the Fed has hiked its key interest rate from near zero to almost 4% this year, and it's not done yet.
As of Monday's close, the Dow Jones Industrial Average has fallen 10.8% from its all-time closing high on Jan. 4. The S&P 500 is down 20.6% from its peak, while the Nasdaq composite has lost 33.3%.
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Investors remain far more upbeat than noninvestors. Among noninvestors, the IBD/TIPP index rose 1.7 points to 36.2, deeply pessimistic.
The November IBD/TIPP Poll reflects online surveys of 1,359 adults from Nov. 2-4. 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.
