Americans have grown a bit more pessimistic about the U.S. economy with the end of monthly child care tax credits, the highest inflation in a generation and a stock market pullback, the February IBD/TIPP Poll finds.
The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, slipped seven-tenths of a point to 44. That makes seven straight months below the neutral 50 level.
The silver lining is that the six-month economic outlook index ticked higher, albeit from deeply pessimistic levels.
High Inflation Shrinks Wages
Directionally, at least, the better near-term outlook seems consistent with last Friday's jobs report, which showed the U.S. economy added a stronger-than-expected 467,000 jobs in January, despite the omicron surge. Meanwhile, the annual pace of average hourly wage gains accelerated to 5.7%.
The problem, however, is that the rise in consumer prices is eating away all those wage gains, and then some, for most Americans. The consumer price index rose 7.3% from a year ago in December, the biggest increase in 39 years.
The IBD/TIPP Poll finds that just 19% of adults say their wages have kept pace with inflation, while 49% say they haven't kept pace.
Household incomes took another hit in January, when monthly child tax credit payments lapsed. Most households were receiving $250-$300 per child each month, after Democrats raised the annual child tax credit to $3,000-$3,600. That was up from $2,000, or $1,400 for those with limited tax liability. Democrats have so far failed to extend the expanded benefit as President Biden's Build Back Better plan remains stuck in the Senate.
Seniors collecting Social Security finally got some relief in January as their monthly checks saw a 5.9% cost-of-living increase.
Despite apparent labor market tightness, the IBD/TIPP Poll finds that 41% of households have at least one member who is out of work and looking for employment, up 1 point from January. Now 32% are concerned about job loss in the household, down 3 points. Factoring in the overlap, the share of job-sensitive households is currently 47%, down one point from last month.
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U.S. Economic Optimism Index Components
The IBD/TIPP Economic Optimism Index is a composite of three major subindexes. They track views of near-term prospects for the U.S. economy, the outlook for personal finances and support for government economic policies.
In February, the six-month U.S. economic outlook index edged up one point to 38.9, after hitting the lowest level since July 2020 the prior month.
The personal finances subindex slipped nine-tenths of a point to 51.4. That's well off the 59.7 Covid-era peak last July, but still reflecting modest optimism.
The gauge of support for federal economic policies subindex slid 2.2 points to 41.7.
Investors Grow More Bearish On U.S. Economy
As the Federal Reserve turned more hawkish, Treasury yields jumped and the stock market, particularly the tech sector, took a beating, the broad U.S. Economic Optimism gauge dived 9.6 points to 48.8 among self-described investors. That's the lowest level since September 2016.
The Nasdaq suffered its sharpest four-session loss since September 2020, amid the IBD/TIPP polling period. The Nasdaq composite is below its 200-day line while the S&P 500 is trying to hold support at that long-term level.
Make sure to read IBD's daily afternoon The Big Picture column to get the latest read on the prevailing market trend and what it means for your trading decisions.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
Investors remain far less downbeat than noninvestors. Among noninvestors, the IBD/TIPP index lost eight-tenths of a point to 42.7.
The January IBD/TIPP Poll reflects online surveys of 1,355 adults from Feb. 2-4. The results come with a credibility interval of +/- 2.8 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
