The IBD/TIPP Economic Optimism Index declined 2.2 points, or 4.6% in May, posting a reading of 45.8 vs. 48.0 in April. The index is 0.9 points above its 12-month average of 44.9, 1.4 points above its reading of 44.4 in December 2007 when the economy entered the recession, and 3.5 points below its all-time average of 49.3.
Note: Index readings above 50 indicate optimism; below 50 indicate pessimism.
The IBD/TIPP Economic Optimism Index has a good track record of foreshadowing the confidence indicators put out later each month by the University of Michigan and The Conference Board. IBD/TIPP conducted the national poll of 850 adults from April 26 to May 1. The margin of error is +/-3.4 percentage points.
The IBD/TIPP Economic Optimism Index has three key components. This month, all three components declined.
•The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, declined 2.6 points, or 5.7%, to 43.1. The sub-index was 32.1 when the economy entered the last recession in December 2007.
•The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, dropped 2.7 points, or 4.6%, to 55.5.
•Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, fell 1.3 points, or 3.2%, to 38.9.
“Consumers became pessimistic on all aspects of the economy. Our data suggests the recovery may be sputtering. Both the low labor participation rate of 62.8% and the first-quarter GDP growth rate of 0.1% reinforce our hypothesis,” said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner. “Forty-eight percent think that the U.S. is still in a recession. Also, 49% feel the economy is not improving, while 50% believe it is.”
“Despite media reports of a coming rebound, most Americans don’t see it yet,” said Terry Jones, associate editor of Investor’s Business Daily. “And despite the widely touted creation of 288,000 jobs in April, more than 800,000 people left the workforce during the month. The recovery remains subpar, at best, and may be in jeopardy.”
This month, three of the 21 demographic groups that IBD/TIPP tracks were above 50 on the Economic Optimism Index. Three groups improved and eighteen declined.
On the Economic Outlook component, two of the 21 groups that IBD/TIPP tracks scored in optimistic territory. Two groups improved and nineteen declined.
On the Personal Financial component, nineteen of the 21 groups IBD/TIPP tracks scored in optimistic territory. Four groups increased and seventeen decreased.
On the Federal Policies component, three of the 21 demographic groups tracked were above 50. Six groups advanced on the component and fifteen declined.