The stock market rally pushing the S&P 500 to all-time highs lifted the personal financial outlook among investors to a new record, the July IBD/TIPP Poll finds. Yet rising financial stress, as stimulus fades and inflation percolates, is weighing on U.S. economic optimism.
The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, slipped 2.1 points to 54.3 in July, the lowest since February. Readings above the neutral 50 level reflect optimism.
U.S. Economy’s Covid Recovery
The Covid jobs recovery strengthened in June, and wages continued to jump as reopening sectors of the U.S. economy bid for scarce labor. Meanwhile, the S&P 500 and Nasdaq both rose to record highs through the June 30-July 2 polling period. Through Tuesday’s stock market action, the S&P 500 has climbed nearly 16% this year, the Nasdaq 14% and the Dow Jones 13%.
Yet other U.S. economic crosscurrents more than offset those positives in the past month. The consumer price index jumped 5% from a year ago in May, the biggest annual gain since 2008. The boost from stimulus checks mailed out in January and March is subsiding. Meanwhile, numerous states have canceled emergency jobless benefits, including an extra $300 in weekly support, to coax the unemployed back off the sidelines as businesses have trouble finding enough workers.
The IBD/TIPP Financial Related Stress Index rose to 61.9, up from 59.0 in June. Readings above 50 indicate rising stress. The financial stress index fell to a Covid-era low of 56.8 in early April, after most Americans received stimulus checks of $1,400 per person.
The jobs recovery still has a long way to go. The IBD/TIPP Poll finds that 43% of households have at least one member who is out of work and looking for employment, unchanged from June. Another 31% are concerned about job loss in the household, down from 34%. Factoring in the overlap, the share of job-sensitive households is currently 53%, down one point from June.
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 views of how well government economic policies are working.
The six-month outlook for the U.S. economy fell 4.8 points to a five-month-low 50.8. The six-month economic outlook index hit a 14-year high of 57 in February 2020, then tumbled as low as 37.3 in July.
The personal finances subindex rose 2.4 points to 59.7, highest of the Covid era. The index set a crisis low of 49.8 in June 2020. Among investors, with at least $10,000 in household-owned stocks or mutual funds, the financial outlook gauge jumped 7 points to 68.1, the highest in 20-plus years of IBD/TIPP polling. Among noninvestors, however, the financial outlook dipped two-tenths of a point to 55.2.
The federal policies subindex fell 4 points to 52.4. The 57.9 reading in February 2020, before the coronavirus hit, was the highest since June 2002.
The July IBD/TIPP Poll reflects online surveys of 1,424 adults, including 1,145 registered voters, from June 30-July 2.