A clear majority of Americans — 58% — think the U.S. economy is in a recession, up from 53% a month ago and 48% in May, the July IBD/TIPP Poll finds. As inflation cancels out wage gains, the near-term outlook for personal finances just hit a record low for the survey back to February 2001.
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The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, edged up fourth-tenths of a point to 38.5, a meager bounce from its lowest reading since August 2011. That was back when the country was still climbing out of the financial crisis, and a battle over fiscal policy between the House GOP and President Obama nearly led to a default on U.S. debt.
Pessimism maintained its grip for an 11th straight month. Readings above the neutral 50 level reflect optimism.
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 June, the six-month outlook for the U.S. 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 finances subindex fell 1.1 points to 45.3 as inflation’s bite into incomes and the stock market’s decline hit retirement accounts. That’s the lowest level 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 rose six-tenths of a point to 38, edging above June’s six-year low. 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?
The glum near-term outlook seems at odds with the June jobs report, delivered on July 8, which showed the U.S. economy added a solid 372,000 jobs for the month as the unemployment rate held at 3.6%. Meanwhile, the average hourly wage rose a strong 5.1% from a year ago.
The continued strength of the labor market seemed to debunk the notion that the U.S. economy is in a recession.
The problem, however, is that the rise in consumer prices is eating away all those wage gains, and then some, for most Americans. The consumer price index rose 8.6% from a year ago in May, the biggest increase in 40 years.
That’s why consumer spending was negative in May on an inflation-adjusted basis.
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The IBD/TIPP Poll finds that just 19% of adults say their wages have kept pace with inflation, while 54% say they haven’t kept pace. Meanwhile, 91% of Americans are concerned about the path of inflation over the next 12 months.
The IBD/TIPP Financial-Related Stress Index dipped 0.2 point to 69.3 in June. That’s still not 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 41% of households have at least one member who is out of work and looking for employment, down 1 point from June. Now 36% are concerned about job loss in the household, up 6 points on the month. Factoring in the overlap, the share of job-sensitive households is currently 53%, unchanged from June.
Investors Are Slightly Bearish On U.S. Economy As S&P 500 Slides
Investors’ economic views firmed a bit in July as oil prices moderated and the stock market basically treaded water, albeit in some rough seas.
The U.S. Economic Optimism gauge rose 1.4 points to 48.3 among self-described investors, but remained in pessimistic territory for a third straight month. IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
As of Monday’s close, the Dow was down 15.3% from its all-time closing high on Jan. 4. The S&P 500 has fallen 19.6% from its peak close, while the Nasdaq has lost 29.2%.
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Make sure to read IBD’s daily afternoon The Big Picture column to get the latest read on the prevailing market trend and what it means for your trading decisions.
Investors remain far more upbeat than noninvestors. Among noninvestors, the IBD/TIPP index slipped six-tenths of a point to 33.5, deeply pessimistic.
The July IBD/TIPP Poll reflects online surveys of 1,643 adults from July 6-9. The results come with 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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