The IBD/TIPP Economic Optimism Index inched higher in June but remained at a deeply pessimistic level. Sliding support for federal economic policies among young adults following last week's debt-ceiling deal largely offset broad improvement in the outlook for personal finances.
The overall IBD/TIPP U.S. Economic Optimism Index edged up one-tenth of a point to 41.7, after a 5.8-point dive in May. The index has remained in pessimistic territory, below the 50 neutral level, for 22 consecutive months.
Student Loan Payments
The gauge of support for federal economic policies fell another 1.4 points to 38.6, after diving 5.3 points in May. That put approval of federal economic policies at the weakest level since last August's eight-year low.
Support for federal economic policies surged last September after President Biden announced the forgiveness of up to $20,000 in student loans. But those gains have evaporated as the fate of Biden's program is set to be decided by the Supreme Court later this month.
This month's drop in support for federal economic policies may stem from last week's debt-ceiling deal, which included an agreement to end the moratorium on most student-loan payments later this summer after more than three years.
Approval of federal economic policies dived among those age 18-24 and fell moderately among those 25-44, while rising in the above-45 age group.
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Now 51% of adults polled think a U.S. recession is at hand. That's down from 55% in May and the lowest since May 2022. That figure got as high as 61% in October.
On Friday, the Labor Department reported that the U.S. economy added 339,000 payroll jobs, but unemployment rate rose to 3.7% and the workweek was the shortest since the Covid lockdown.
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While the average hourly wage is up a strong 4.3% from a year ago, fewer hours may be exacerbating the erosion of inflation-adjusted wages. The June IBD/TIPP Poll finds that just 22% of workers say their wages have kept pace with inflation, while 52% say wages haven't kept up.
The IBD/TIPP Financial-Related Stress Index eased to 66.8 from May's 67.2, but remains historically high. Readings above 50 reflect rising stress. The financial-stress index was below 50 just before the pandemic in February 2020, then shot up to a record 69.8 in April 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 so far surged 315% from a year ago, to 417,500.
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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 and personal finances, along with support for government economic policies.
In June, the six-month outlook for the U.S. economy dipped one-tenth of a point to 34.5, 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 rose 1.8 points to 51.9, 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.
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Investors Turn Pessimistic On U.S. Economy
Among investors, the U.S. Economic Optimism gauge fell 4.5 points to 47.9, hitting the lowest level since November amid a relapse into pessimistic territory. Meanwhile, pessimism among noninvestors eased a bit, as the IBD/TIPP index rose 2.1 points to 38.1.
IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.
Investor optimism has faded despite the stock market's resilience and a likely pause in Federal Reserve rate hikes.
The S&P 500 is up 11.3% for the year and 19.5% from the bear-market closing low on Oct. 12. Still, there have been a series of bear-market rallies and it's not yet certain 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 June IBD/TIPP Poll reflects online surveys of 1,358 adults from May 31-June 2. 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.
