U.S. Economic Optimism Rebounds, But There’s A Red Flag

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The IBD/TIPP U.S. Economic Optimism Index perked up to a 5-month high in September, after sinking to a 12-month low in August. Yet as the mood brightened among higher earners and investors, helped by the S&P 500 rally, low- to moderate-income groups and noninvestors remained deeply pessimistic.




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The overall IBD/TIPP U.S. Economic Optimism Index rose 2.9 points to 43.2, the highest since April’s 47.4 reading. Still, the index remained mired in pessimistic territory, below the 50 neutral level, for a 25th consecutive month.

U.S. Economy In Recession?

Now 49% of adults polled think a U.S. recession is at hand, unchanged from August but down from 55% in July. That figure got as high as 61% last October. While 80% say they’re concerned about a recession, that slipped from 83% in August and 84% in July.

On Friday, the Labor Department reported that the U.S. payrolls added 187,000 jobs in August as the unemployment rate rose to 3.8% amid a jump in people joining the labor force.


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While the average hourly wage is up a strong 4.3% from a year ago, the September IBD/TIPP Poll finds that just 20% of adults say their wages have kept pace with inflation, while 54% say wages haven’t kept up.

The IBD/TIPP Financial-Related Stress Index rose to an 11-month-high 68.1 amid a renewed rise in gas prices. 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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Investors Turn Optimistic As S&P 500 Rallies

Among investors, the U.S. Economic Optimism gauge bounced 7.9 points to 55.6, returning to optimistic territory. However, deep pessimism among noninvestors eased only slightly, as the IBD/TIPP index rose 1.1 points to 37.8.

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 17.1% for the year and 25.7% from the bear-market closing low on Oct. 12. The Nasdaq has climbed 34% year-to-date and 37.3% 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.

The optimism gap between higher earners and more moderate income groups also widened. Among those earning more than $75,000, the IBD/TIPP Economic Optimism Index jumped 10.4 points to 59.2. But among those earning $75,000 and below, the IBD/TIPP index dipped three-tenths of a point to 37.8.


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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 economic policies.

In September, the six-month outlook for the U.S. economy rose 3.1 points to 38.3, 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 climbed 4.1 points to 52.8, returning to optimistic territory. 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 gauge of support for federal economic policies rose 1.5 points to a still-dismal 38.6. August’s 37.1 reading was the weakest since the eight-year low hit in August 2022.

Support for federal economic policies had surged in the fall of 2022 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 moratorium on student loan payments has now expired, with initial payments due in October. However, Biden has announced new plans to forgive student loans and reduce monthly payments. While some 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.

The September IBD/TIPP Poll reflects online surveys of 1,351 adults from Aug. 30 to Sept. 1. 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.

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