Optimism about the US economy continued to decline over the past month as the Federal Reserve aggressively raised interest rates to contain inflation.
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The IBD/TIPP economic optimism index fell 1.2 points to 40.4 in November. The 6.6 point surge in optimism in September amid falling gas prices and the cancellation of student loans now looks like a false dawn.
The index slipped to within 2.3 points of the 11-year low reached in August. It has been stuck in pessimistic territory, below the neutral 50 level, for 15 straight months.
Acute economic pessimism is the backdrop for Americans as they head to the polls on Election Day. President Biden’s approval rating remains deeply underwater, with Republicans set to win back the US House and most likely the Senate as well.
Divide the generations on the American economy
The Biden administration’s decision to forgive up to $20,000 in federal college loans has contributed to a big gap in optimism between adults 18-44 and those 45 and older. But young adults have grown less optimistic over the past month.
The IBD economic optimism index among 18-24 and 25-44 year olds averaged 49.5 in November, down from 53.9 in October, although it is still well above 43.2 of August, before President Joe Biden acted on student debt. Meanwhile, the index averaged 32.2 for those aged 45 and over in November compared to 31.5 and 33.6 in August.
The US economy in recession?
The share of Americans who think the US economy is in recession rose to 58% from 61% in October and 62% in August. Still, recession fears have risen since May, when 48% of Americans believed a recession had begun.
Meanwhile, the IBD/TIPP Financial Stress Index fell 1.7 points to 67.8 in the November poll. The October figure was just below the April 2020 record of 69.8 in polls dating back to December 2007. Readings above 50 mean financial stress is rising.
Job growth remained solid in October, with employers adding 261,000 workers, while annual wage growth was 4.7%. Yet only 20% of adults say their wages have kept pace with inflation, while 50% say they haven’t. Meanwhile, 88% of Americans are concerned about the path of inflation over the next 12 months.
Now 32% of adults are worried about job loss in their household, up from 38% in October and 34% in September.
Biden’s approval rating remains stuck in the mud
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 November, the six-month outlook for the US economy fell 1.1 points to 34.3. In June, this sub-index fell to 30.6, the lowest level since July 2008, when the country was mired in a recession.
The personal finance sub-index edged up two tenths of a point to 48.4. This is still only moderately above July’s reading of 45.3, which was the lowest in the history of the IBD/TIPP Economic Optimism Index dating back to February 2001. Opinions on finance personal had reached a bullish level of 59.7 in July 2021.
The gauge of support for federal economic policies fell 2.6 points to 38.6. August’s reading of 35.3 was the lowest level since January 2014. That gauge hit 56.4 in June 2021, after several rounds of stimulus checks and amid heavy 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.
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Investors turn the US economy down
The US economic optimism gauge fell 3.8 points to 47.7 among self-proclaimed investors, re-entering bearish territory after a two-month respite.
The moderate pessimism among investors comes amid a tough run for equities, as the Fed raised its key interest rate from near zero to nearly 4% this year, and it’s not done yet.
As of Monday’s close, the Dow Jones Industrial Average fell 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 is down 33.3%.
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Investors remain much more optimistic than non-investors. Among non-investors, the IBD/TIPP index rose 1.7 points to 36.2, deeply pessimistic.
The November IBD/TIPP poll reflects online polls conducted with 1,359 adults from November 5-7. The results are accompanied by a credibility interval of +/- 2.8 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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