The IBD/TIPP Economic Optimism Index tumbled to seriously pessimistic levels in May, as increased layoffs and high interest rates, exacerbated by a bank crisis, raise the risk of a U.S. recession.
The overall IBD/TIPP U.S. Economic Optimism Index plunged 5.8 points to 41.6, the lowest since November, after hitting a 16-month high in April. The index has remained in pessimistic territory, below the 50 neutral level, for a 21 consecutive months.
U.S. Economy In Recession?
Now 55% of adults polled think a U.S. recession is at hand. That's unchanged from April but up from 53% in March and February. However, that figure reached 61% in October.
On Friday, the Labor Department reported that the U.S. economy added 253,000 new workers, sending the unemployment rate to 3.4%, matching a half-century low. The average hourly wage has grown a solid 4.4% over the past year.
Biden Approval Rating Falls Sharply; It's The Economy
Yet, the IBD/TIPP Poll finds that just 23% of workers say their wages have kept pace with inflation, down from 28% in April. Meanwhile, 52% say wages haven't kept up with inflation, up from 45%.
The outlook for inflation is a cause of concern for 91% of poll respondents, up from 90% in April.
The IBD/TIPP Financial-Related Stress Index dipped to 67.2 from April's 67.9, which was the highest since last October. Readings above 50 reflect rising stress. The financial-stress index was below 50 just prior to the pandemic in February 2020.
The uptick in financial stress comes amid rising layoffs and following expiration of a $95 monthly pandemic boost to Supplemental Nutrition Assistance Program benefits for millions of households.
Outplacement firm Challenger, Gray & Christmas reports that announced layoffs this year have surged 322% from a year ago to 337,411. New weekly claims for unemployment benefits have averaged 239,250 over the past four weeks, up 25% since late September. Meanwhile, the number of people continuing to claim jobless benefits as they seek a new job has jumped by about 530,000 to 1.828 million.
Get Alerts To Stocks Near Buy Points With IBD SwingTrader
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 and personal finances, along with support for government economic policies.
In May, the six-month outlook for the U.S. economy plunged 7 points to 34.6, the lowest since November. However, this subindex got as low as 30.6 last June, the lowest level since July 2008, when the country was mired in a recession.
The personal finances subindex fell 5.2 points to 50.1, the worst since January. Last July's 45.3 reading was the most pessimistic in the history of the IBD/TIPP Economic Optimism Index dating back to February 2001.
The gauge of support for federal economic policies slid 5.3 points to 40, the lowest since November. The gauge, which hit an eight-year low of 35.3 last August, got as high as 56.4 in June 2021, after more rounds of stimulus checks and amid a big push for more expansive policies from President Biden. Now, however, stimulus has lapsed and the Federal Reserve has hiked its key interest rate by 5% to try and rein in the inflation to which stimulus contributed.
Time The Market With IBD's ETF Market Strategy
Investors, Noninvestors Divided On U.S. Economy
Among investors, the U.S. Economic Optimism gauge fell 5.9 points to 52.4, but remained in positive territory. Meanwhile, pessimism among noninvestors deepened, as the IBD/TIPP index slid 3.3 points to 36.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
Investors may be more likely to view the glass as half-full because the stock market has shown resilience since a banking crisis erupted last month with the sudden failure of SVB Financial Group. The Federal Reserve expects tighter bank credit to slow economic growth to a crawl later this year, allowing for a pause in rate hikes.
The S&P 500 is up 7.8% for the year and 15.7% from the bear-market closing low on Oct. 12. Still, there have been a series of bear-market rallies and it's not yet clear that this one is for real. Be sure to read IBD's daily afternoon The Big Picture column to get the latest read on the prevailing stock market trend and what it means for your trading decisions.
The May IBD/TIPP Poll reflects online surveys of 1,480 adults from May 3-5. The results come with a credibility interval of +/- 2.6 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
