The IBD/TIPP Economic Optimism Index gained 3.1 points, or 6.4% in January, posting a reading of 51.5 vs. 48.4 in December. The index is 5.0 points above its 12-month average of 46.5, 7.1 points above its reading of 44.4 in December 2007 when the economy entered the recession, and 2.3 points above its all-time average of 49.2.
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 867 adults from January 5 to January 8. The margin of error is +/-3.4 percentage points.
The IBD/TIPP Economic Optimism Index has three key components. This month, all three components improved.
• The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, improved 4.4 points, or 9.1%, to 52.9. 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, increased 0.8 points, or 1.4%, to 57.2.
• Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, climbed 4.1 points, or 10.2%, to 44.3.
“Low gasoline prices are helping to boost confidence. After getting trapped for twenty-six months in the pessimistic territory, consumer confidence crosses over to the optimistic territory. 59% believe that the economy is improving and another 58% still think that we are not in a recession,” said Raghavan Mayur, president of TIPP, a unit of TechnoMetrica Market Intelligence, IBD's polling partner.
“The plunge in oil prices is having a stimulative effect on both consumer expectations and on the economy,” said Terry Jones, associate editor of Investor’s Business Daily. “At current price levels, Americans are getting the equivalent of a $200 billion tax cut, thanks to the fracking revolution.”
This month, fourteen of the 21 demographic groups that IBD/TIPP tracks were above 50 on the Economic Optimism Index. Nineteen groups improved and two declined.
On the Economic Outlook component, fourteen of the 21 groups that IBD/TIPP tracks scored in optimistic territory. All twenty-one groups improved.
On the Personal Financial component, nineteen of the 21 groups IBD/TIPP tracks scored in optimistic territory. Fifteen groups increased and six declined.
On the Federal Policies component, two of the 21 demographic groups tracked were above 50. Twenty groups advanced on the component and one declined.