Most Americans think the US economy is in recession: IBD/TIPP
A clear majority of Americans – 58% – think the US economy is in recession, down from 53% a month ago and 48% in May, according to the July IBD/TIPP poll. As inflation wipes out wage gains, the near-term outlook for personal finances has just hit a survey record low dating back to February 2001.
The IBD/TIPP Economic Optimism Index, a first monthly reading of consumer confidence, edged up four tenths of a point to 38.5, a meager rebound from its lowest level since August 2011. This was when the country was still emerging from the financial crisis and a battle over fiscal policy between the House GOP and President Obama nearly led to a US debt default.
Pessimism maintained its grip for an 11th consecutive month. Readings above the neutral level of 50 reflect optimism.
Components of the US Economic Optimism Index
The IBD/TIPP Economic Optimism Index is a composite of three main sub-indices. They track the short-term outlook for the US economy and personal finances, as well as support for government economic policies.
In June, the six-month outlook for the US economy rose 1.6 points to 32.2, a month after hitting the lowest level since July 2008, when the country was mired in a recession.
The personal finance sub-index fell 1.1 points to 45.3 as inflation rippled through incomes and the stock market decline hit retirement accounts. This is the lowest level in the history of the IBD/TIPP economic optimism index dating back to February 2001. Opinions on personal finances reached a bullish level of 59.7 last July.
The federal economic policy support gauge rose six-tenths of a point to 38, slightly above June’s six-year low. That gauge hit 56.4 last June, after several rounds of stimulus checks and amid strong pressure for more expansive policies from President Biden. Now, however, the stimulus measures have expired and the Federal Reserve is raising interest rates in an attempt to contain the inflation that the stimulus measures have contributed to.
Biden’s endorsement rebounds from low point – but not among this key group
Is the US economy in recession?
The gloomy near-term outlook seems at odds with that of June employment report, released July 8, which showed the US economy added a solid 372,000 jobs for the month, with the unemployment rate holding steady at 3.6%. Meanwhile, the average hourly wage rose 5.1% from a year ago.
The continued strength in the labor market seemed to demystify the idea that the US economy is in recession.
The problem, however, is that rising consumer prices are eating away at all of those wage gains, and even some, for most Americans. The consumer price index rose 8.6% from a year ago in May, the biggest increase in 40 years.
This is why consumer spending was negative in May on an inflation-adjusted basis.
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The IBD/TIPP poll finds that only 19% of adults say their wages have kept pace with inflation, while 54% say they haven’t. Meanwhile, 91% of Americans are concerned about the path of inflation over the next 12 months.
The IBD/TIPP financial stress index fell 0.2 points to 69.3 in June. That’s not far off the April 2020 record of 69.8 in polls dating back to December 2007. Readings above 50 mean financial stress is rising.
Despite tight labor markets, the IBD/TIPP survey found that 41% of households had at least one member unemployed and looking for work, down 1 point from June. Now, 36% are worried about the loss of jobs in the household, up 6 points over the month. Taking the overlap into account, the share of job-sensitive households is currently 53%, unchanged from June.
Investors are slightly bearish on the US economy as the S&P 500 slides
Investors’ economic views firmed up somewhat in July as oil prices moderated and the stock market virtually ground to a halt, albeit in choppy seas.
The U.S. economic optimism gauge rose 1.4 points to 48.3 among self-proclaimed investors, but remained in pessimistic territory for a third straight month. IBD/TIPP counts as investors respondents who report holding at least $10,000 in mutual funds or stocks owned by their household.
As of Monday’s close, the Dow was down 15.3% from its all-time closing high on Jan. 4. The S&P 500 fell 19.6% from its closing high, while the Nasdaq lost 29.2%.
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Investors remain much more optimistic than non-investors. Among non-investors, the IBD/TIPP index slipped six tenths of a point to 33.5, deeply pessimistic.
The July IBD/TIPP poll reflects online polls of 1,643 adults from July 6-9. The results are accompanied by a credibility interval of +/- 2.5 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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