The IBD/TIPP Economic Optimism Index declined by 7.6 points, or 16.5%, in October, posting 38.4 vs. 46.0 in September. The index is 7.2 points below its 12-month average of 45.6, 6.0 points below its reading of 44.4 in December 2007 when the economy entered the recession, and 11.1 points below its all-time average of 49.5.
Historically, the current month-to-month change of 7.6 points is comparable to the change in the aftermath of hurricane Katrina in September 2005 (9.7 points) and the change after the Middle East turmoil in March 2011 (7.9 points).
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 904 adults from September 28 to October 2. The margin of error is +/-3.3 percentage points.
The IBD/TIPP Economic Optimism Index has three key components. This month, all three components decreased.
•The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, dropped 10.1 points, or 22.0%, to 35.8. 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, lost 6.0 points, or 11.0%, to 48.3.
•Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, declined 6.6 points, or 6.6%, to 31.2.
“The recent gridlock in Washington, primarily the government shutdown and the stalemate in debt ceiling talks, don’t inspire confidence,” said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner. “Fifty-eight percent think that the U.S. is still in a recession. While 53% feel the economy is not improving, 43% think the economy is improving. Twenty-five percent of households have at least one person looking for full-time employment. In addition, 8% of households have at least one person whose work hours have been cut or limited to fewer than 30 hours per week, as a result of ObamaCare, in the past 12 months.”
“These data are devastating for Obama’s agenda,” said Terry Jones, associate editor of Investor’s Business Daily. “Yes, the debt stalemate and shutdown hurt, but those will likely be over within weeks if not sooner. But ObamaCare, which is having a far-reaching impact on both employment and the overall economy, will remain. It could be a significant drag on economic optimism in coming months.”
This month, none of the 21 demographic groups that IBD/TIPP tracks was above 50 on the Economic Optimism Index. All 21 groups declined.
On the Economic Outlook component, none of the 21 groups that IBD/TIPP tracks scored in optimistic territory. All 21 groups declined.
On the Personal Financial component, seven of the 21 groups IBD/TIPP tracks scored in optimistic territory. One group improved on the component and 20 declined.
On the Federal Policies component, none of the 21 demographic groups tracked were above 50. One group advanced on the component and 20 declined.