The IBD/TIPP Economic Optimism Index improved by 1.4 points, or 3.1%, in January, posting 46.5 vs. 45.1 in December. The index is 1.8 points below its 12-month average of 48.3, 2.1 points above its reading of 44.4 in December 2007 when the economy entered the recession, and 3.3 points below its all-time average of 49.8.
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 839 adults from January 2 to January 7. The margin of error is +/-3.5 percentage points.
The IBD/TIPP Economic Optimism Index has three key components. This month, two of the three components improved.
• The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, gained 1.8 points, or 4.2%, to 44.5. 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 2.8 points, or 5.5%, to 54.0.
• Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working slipped 0.6 points, or 1.4%, to reach 40.9.
"We see a general improvement in economic confidence across-the-board. However, fifty-nine percent think that the economy is still in a recession. Forty-eight percent feel that the economy is improving, while a similar share thinks that the economy is weakening,” said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner.
“Though improved from a month earlier, the data clearly remain in the pessimistic zone,” said Terry Jones, associate editor of Investor’s Business Daily. “That may in part be due to continued weak economic activity, the lingering effects of the fiscal cliff debate, or the realization by many Americans that their taxes have gone up in the new year, or some combination of the three.”
This month, four of the 21 demographic groups that IBD/TIPP tracks were above 50 on the Economic Optimism Index. Fifteen groups improved and six declined.
On the Economic Outlook component, three of the 21 groups that IBD/TIPP tracks scored in optimistic territory. Sixteen groups improved on the component and five declined.
On the Personal Financial component, 17 of the 21 of the groups IBD/TIPP tracks scored in optimistic territory. Sixteen groups improved on the component and four declined; one group did not change.
On the Federal Policies component, three of the 21 demographic groups tracked were above 50. Nine groups advanced on the component and eleven declined; one group did not change.