Economic Pessimism Loosens Grip, Despite High Inflation: IBD/TIPP

Despite high inflation, economic pessimism is loosening its grip, according to the April IBD/TIPP Economic Optimism Index.

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May 14, 2023 • 3 min read

The April IBD/TIPP poll finds that Americans' gloomy economic mood may be starting to warm up in response to the high inflation rate.

The IBD/TIPP Economic Optimism Index (a monthly early read of consumer confidence) jumped 4.5 to 45.5. It has risen from the lowest level in eight years to its highest level since 2022. Pessimism remained strong for the eighth consecutive month. Positive readings are those above neutral 50.

The news is still not good, even though the economic confidence dropped in March as gas prices spiked after Russia invaded Ukraine. The level of household financial stress has reached its highest since April 2020 at the beginning of the pandemic.

The IBD/TIPP Economic Optimism Index consists of three subindices. The index tracks the opinions of Americans on near-term economic and financial prospects, as well as their support for government policies.

After crashing down to their lowest levels since August 2011, the six-month outlooks for the U.S. economic and personal finances saw a solid rebound. It was when the U.S. was still recovering from the financial crisis and the battle between President Obama and the House GOP over fiscal policy nearly led to the default of U.S. government debt.

The six-month U.S. Economic Outlook Index jumped by 5.8 points in April to 39.7. It's still down from the Covid era high of 54.9 in April 2021.

After slipping to pessimistic land in March, the subindex for personal finances recovered 4.9 points. This was the first time in over 21 months that it had been in this territory. Last July, views of personal finances reached a bullish 59.5.

The support for federal policies on economics has increased by 2.6 points, to 44.5. This gauge reached a high of 56.4 in June last year, following more rounds on stimulus checks.

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The still gloomy outlook for the near future seems to be at odds with the March employment report released on April 1. This showed that the U.S. added 431,000 new jobs in the month, while the unemployment rate fell 3.6%. The average hourly salary has risen by a solid 5.6% in comparison to a year earlier.

Problem is, the increase in consumer prices is eating up all of those wage increases and more for most Americans. In March, the consumer price index increased by 8.5% compared to a year earlier. This is the largest increase in over 40 years.

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According to the IBD/TIPP poll, only 20% of adults believe their wages have kept up with inflation. Meanwhile, 48% claim they have not.

The IBD/TIPP Financial-related Stress Index increased by 1.5 points, to 67.9. The higher numbers indicate a rising level of stress.

The IBD/TIPP poll found that despite the apparent tightening of the labor market, 41% of households had at least one person who was unemployed and seeking employment. This is a 1 point decrease from March. 32% of households are now concerned about losing their job, a 2 point drop. When you take into account the overlap, 52% of households are job-sensitive, down one point since last month.

Investors' views on the economy improved in April despite the rough start of the year for the stock market, amid increasing interest rates and inflation rates as well as Russia-related risks.

After hitting its lowest level since September 2016, the U.S. Economic Optimism Index rose 5.4 points, to 52. IBD/TIPP considers respondents as investors if they own at least $10,000 worth of mutual funds or stocks in their household.

The recent market rally, which has seen the S&P 500 rise above the lows reached during the invasion of Ukraine on February 24, has now given way to new selling pressure.

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Investors are still far more optimistic than non-investors. Noninvestors' IBD/TIPP Index rose 3.9 points, to 41.7. This index is still pessimistic.

The IBD/TIPP April Poll is based on online surveys conducted by 1,305 adults between April 6-8. The results are accompanied by a credibility range of +/-2.8 points.

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