The IBD/TIPP Economic Optimism Index declined by 0.8 points, or 1.6%, in May posting 48.5 vs. 49.3 in April. The index is 4.5 points above its 12-month average of 44.0 and 4.1 points above its reading of 44.4 in December 2007 when the economy entered into the recession, and 1.4 points below its all-time average of 49.9.
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 910 adults from April 27 to May 4. The margin of error is +/-3.3 percentage points.
The IBD/TIPP Economic Optimism Index has three key components, two of which declined in May.
- The Six-Month Economic Outlook, a measure of how consumers feel about the economy's prospects in the next six months, declined 1.7 points, or 3.3%, to 50.4. 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, improved 1.5 points, or 2.7%, to reach 56.3.
- Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working dropped 2.3 points, or 5.6%, to reach 38.7.
"Consumer confidence declined as the high unemployment persists. The wobbly stock market is also not helping. According to our survey, 23% of households have at least one member of household unemployed looking for employment now which translates to approximately 30 million Americans," said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner.
"Declining confidence is a clear sign the economy is not hitting on all cylinders," said Terry Jones, associate editor of Investor's Business Daily. "With the European Union imploding and a lack of job and income growth in the U.S., economic optimism is likely to remain on the weak side until significant changes in the economic outlook become apparent."
This month, five of the 21 demographic groups that IBD/TIPP tracks were above 50 on the Economic Optimism Index. Six groups increased on the index.
On the Economic Outlook component, eleven of the 21 groups that IBD/TIPP tracks scored in optimistic territory. Four groups improved this month.
On the Personal Financial component, nineteen of the groups IBD/TIPP tracks scored in optimistic territory. Fourteen groups improved on the component and seven declined.
On the Federal Policies component, two of the 21 demographic groups tracked were above 50. Five groups advanced on the component and sixteen declined.