Optimism over the U.S. economy has collapsed as the latest Covid wave pushes back the jobs recovery amid ebbing federal income supports, the September IBD/TIPP Poll finds.
The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, fell into pessimistic territory for the first time since December, sliding 5.1 points to a 12-month-low 48.5. Readings above the neutral 50 level reflect optimism.
The six-month economic outlook index took an even sharper plunge, diving 8.9 points to 41.3, also the lowest since September 2020.
U.S. Economy’s Covid Recovery
The Covid jobs recovery slackened in August, as the U.S. economy regained 235,000 jobs, about a half-million fewer than Wall Street expected. The slower pace of hiring comes at a particularly bad time.
Pandemic jobless benefits, including an extra $300 in weekly support, expired nationwide on Labor Day, after earlier expirations in 26 states whose governors aimed to coax available workers off the sidelines to ease a labor shortage. As of mid-August, unemployed workers in the remaining states were filling 9 million weekly pandemic-related claims.
The end of the CDC’s eviction moratorium following the Supreme Court’s Aug. 26 decision also could put millions of Americans behind on payments in jeopardy of losing their homes.
The IBD/TIPP Financial Related Stress Index rose 1.7 points to 64.9 in September. That’s the highest level since December, before the second round of stimulus checks went out. Readings above 50 indicate rising stress. The financial stress index fell to a Covid-era low of 56.8 in early April, after most Americans received their third stimulus check.
A surge in inflation is exacerbating financial stress. The consumer price index rose 5.4% from a year ago in July, matching June’s rise for the biggest annual gain since 2008. Prices for food away from home rose 0.8% in July, the biggest monthly gain in 30 years.
On a positive note, the August jobs report showed that annual wage growth accelerated to 4.3% as employers bid for scarce labor.
While the jobs recovery still has a long way to go, the IBD/TIPP Poll finds that 38% of households have at least one member who is out of work and looking for employment, down 4 points from August. Another 33% are concerned about job loss in the household, unchanged on the month. Factoring in the overlap, the share of job-sensitive households is currently 49%, down from 53% in August.
Investor Optimism Slips
If there’s a surprise in the latest IBD/TIPP Poll data, it’s that optimism over the U.S. economy fell a bit more among investors than noninvestors.
Why is that surprising? For one thing, the slowdown in job growth appeared centered on the modest-wage leisure and hospitality sector, which went from adding 415,000 jobs in July to none in August.
For another, the bull market lifted the S&P 500 and Nasdaq composite to record highs during the Sept. 1-3 polling period. The Dow Jones and S&P 500 closed within 1% of record highs on Friday, while the Nasdaq composite hit a new record. Since Biden’s election, the Dow is up 29%, the S&P 500 35% and the Nasdaq 38%.
Optimism among investors fell 6.9 points to 58.5. Still, investors remain far more upbeat than noninvestors, who slid deeper into pessimistic territory with a 5.3-point slide to 42.8.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
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, the outlook for personal finances and views of how well government economic policies are working.
The six-month outlook for the U.S. economy slid 8.9 points to 41.3, lowest since September 2020. The six-month economic outlook index hit a 14-year high of 57 in February 2020, then tumbled as low as 37.3 in July 2020.
The personal finances subindex fell 2.8 points to 55. The index set a crisis low of 49.8 in June 2020, sliding from 64.6 in January 2020, before the pandemic hit.
The federal policies subindex dropped 3.8 points to 49.1, turning negative for the first time since February. The 57.9 reading in February 2020, before the coronavirus hit, was the highest since June 2002.
The September IBD/TIPP Poll reflects online surveys of 1,305 adults from Sept. 1-3.