The IBD/TIPP Economic Optimism Index slipped 1.5 points to 55.1 in the past month, but remained in solidly optimistic territory at the start of August. Readings over the neutral 50 level reflect optimism about the U.S. economy, but expect a sharper pullback in September. That's because President Donald Trump didn't reignite the China trade war until Aug. 1, the eighth and final day of polling. The Dow Jones, which held near a record above 27,000 through July 30, closed on Monday at 25,717.
Up until Trump's tweets last Thursday, economic news looked positive. China trade talks had resumed and the job creation blew past estimates in June. The Dow Jones , S&P 500 and Nasdaq composite all hit records in July. Still, the Fed cut its key interest rate a quarter-point on July 31 to perk up inflation, though Wall Street wanted a bigger cut.
But everything changed the next day. For the second time in three months, Trump blew up a China trade war cease-fire. Via Twitter, he slammed Chinese President Xi Jinping for failing to follow through on a commitment to widen purchases of U.S. agricultural goods. Trump said the U.S. plans to impose a 10% tariff on $300 billion worth of Chinese imports starting Sept. 1. Those tariffs will hit laptops, cell phones, apparel, footwear and other imports. That will affect Apple (AAPL) and many apparel makers and retailers for the first time.
With economic risk back on the rise, the Fed is now expected to keep cutting interest rates to cushion the U.S. economy from trade war fallout.
The IBD/TIPP Economic Optimism Index hit a 15-year high of 58.6 in early May — just before Trump blew up the prior China trade war cease-fire.
Economic Optimism Index Components
The IBD/TIPP Economic Optimism Index is a composite of three major subindexes. They track views of near-term economic prospects, the outlook for personal finances, and views of how well government economic policies are working.
The six-month outlook gauge for the economy dipped 1.6 points to 50.0, with optimistic views matched by pessimism. The subindex hit a 13-year high of 57.5 in February 2018 on the heels of tax cuts.
The six-month personal financial outlook index eased a half-point to 62.6. The October 2018 reading of 66.7 was an all-time best for the IBD/TIPP Poll, which dates back to 2001.
Meanwhile, the measure of confidence in federal economic policies lost 2.4 points to 52.6. May's 55.6 reading just ahead of Trump's May 5 China trade war escalation was the highest since April 2003.
The new IBD/TIPP Poll covers 902 responses from July 25-Aug 1.
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