The IBD/TIPP U.S. Economic Optimism Index sank to a 12-year low in October as confidence in the near-term economic outlook crashed to the lowest level in the poll's history. The survey casts doubt on the Federal Reserve's justification for turning more hawkish last month: robust consumer spending.
The overall IBD/TIPP U.S. Economic Optimism Index dived 6.9 points to 36.3, the lowest since August 2011. Readings below the neutral 50 level reflect pessimism. The 6-month economic outlook index cratered 9.6 points to 28.7, a record low since the IBD/TIPP Poll began in early 2001.
That means the outlook suddenly appears worse than it was at the depths of the dot-com crash, the great financial crisis and the coronavirus pandemic.
The Federal Reserve's Hawkish Turn
Fed policymakers signaled last month that they plan to keep their key interest rate above 5% through the end of next year because consumers show no sign of running out of gas. Yet the Fed based its stance on what was happening in the economy in June and July. Since then, higher market interest rates and gas prices and renewed student loan payments have all hit consumers at the same time.
The IBD/TIPP Financial-Related Stress Index jumped 2.4 points to 70.5, the highest level since December 2008. Readings above 50 indicate rising stress.
The IBD/TIPP Poll could reinforce the belief of many on Wall Street that the Fed has hiked enough. At the Sept. 19-20 Fed meeting, policymakers penciled in one more quarter-point rate hike, but made clear that the decision will hinge on incoming data.
U.S. Economy In Recession?
The latest quarterly batch of Fed projections appeared to signal that recession had been averted. Fed policymakers now only expect the jobless rate to rise to 4.1% from 3.8% currently. In June, they saw the unemployment rate reaching 4.5%.
Yet the IBD/TIPP Poll finds that 54% of adults think the U.S. is in recession, up from 49% the prior two months. That number got as high as 61% in October 2022.
Now 86% say they're concerned about a recession, up from 80% in September and just below the recent peak of 87% in May.
Biden Approval Rating Sinks To New Low On Economic Issues
The IBD/TIPP Poll finds that just 16% of adults say their wages have kept pace with inflation, down from 20% in September. Meanwhile 60% say they haven't kept up vs. 54% last month. The poll responses don't necessarily line up with official inflation numbers. The Labor Department says real average hourly earnings rose 0.5% over the past year, meaning that wages have slightly outpaced inflation for the average worker.
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 economic policies.
October's 28.7 reading for the six-month outlook for the U.S. economy easily undercut its level of 30.6 in June 2022, which had been the lowest level since July 2008, when the country was mired in a recession.
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The personal finances subindex slid 6 points to 46.8, returning to pessimistic territory. The 45.3 reading in July 2022 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 dived 5.1 points to a still-dismal 33.5, a nine-year low. Support for federal economic policies had surged in September 2022 after President Biden announced the forgiveness of up to $20,000 in student loans. But those gains have now mostly evaporated, now that the Supreme Court has struck down Biden's loan forgiveness program.
On top of that, the moratorium on student loan payments has now expired, with initial payments due this month. However, Biden has announced a new plan to reduce monthly payments by raising the level of income borrowers must earn before being liable for student loan payments to about $33,000 per year. That could save many borrowers $1,000 per year in annual payments.
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Investors Turn Gloom As S&P 500 Rally Falters
Among investors, the U.S. Economic Optimism gauge sank 11.6 points to 44, returning to pessimistic territory. Pessimism among noninvestors deepened, as the IBD/TIPP index fell 4.9 points to 32.9.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
The stock market had its worst month of the year in September, following a dramatic rally fueled by artificial intelligence stocks. Through Friday, the S&P 500 has lost 6.6% from its 52-week high on July 31, but remains up 20% from its Oct. 12 bear-market closing low.
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 October IBD/TIPP Poll reflects online surveys of 1,378 adults from Sept. 27-29. The results come with a credibility interval of +/- 2.7 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
