US recession fears ease as gas prices fall and student loans are forgiven: IBD/TIPP
The IBD/TIPP economic optimism index jumped 6.6 points to 44.7 in September as recession worries eased, gasoline prices fell and the administration Biden has decided to cancel up to $20,000 in federal college loans. It was the second-biggest one-month jump in optimism in more than a decade, surpassed only in October 2020, when Americans put aside Covid pessimism amid a rapid rebound in the use and progress of vaccines.
Still, a solid majority of Americans – 59% – believe the US economy is in recession, according to the new IBD/TIPP poll. That’s down from August’s 62%, which followed a steady rise from 48% in May to 53% in June and 58% in July.
As inflation wipes out wage gains, pessimism has maintained its grip for a 13th consecutive month. Readings above the neutral level of 50 reflect optimism.
However, young adults have suddenly become optimistic, with the cancellation of student loans likely playing a role. The US economic optimism index jumped 12.6 points to 55.3 among 18-24 year olds and 8 points to 51.7 among 25-44 year olds. The gains are more moderate among those aged 45-64 (3.6 points to 37.6) and among those aged 65 and over (6 points to 39.1).
Components of the US Economic Optimism Index
The IBD/TIPP Economic Optimism Index is a composite of three main sub-indices. They track the short-term outlook for the US economy and personal finances, as well as support for government economic policies.
In September, the six-month outlook for the US economy jumped 6.9 points to a still bleak 39.5. By June, that sub-index had fallen to 30.6, the lowest level since July 2008, when the country was mired in a recession.
The personal finance sub-index rose 5.5 points to 52. Before a modest rebound in August, the July figure of 45.3 was the lowest in the history of the IBD Economic Optimism Index. /TIPP from February 2001. July.
The gauge of support for federal economic policies jumped 7.4 points to 42.7 after falling in August to its lowest level since January 2014. That gauge hit 56.4 last June after several rounds of stimulus checks and amid heavy pressure for more expansive policies from President Biden. Now, however, the stimulus measures have expired and the Federal Reserve is raising interest rates in an attempt to contain the inflation that the stimulus measures have contributed to.
Biden’s approval rating gets big bounce from young Americans
Is the US economy in recession?
Recession views may have risen for the second-quarter GDP report, which showed the US economy contracted for a second straight quarter.
Yet the bleak outlook seems at odds with August employment report, which showed the US economy added 315,000 jobs for the month. The unemployment rate rose from 3.5% to 3.7%, but only because more people retired and started looking for work. Meanwhile, the average hourly wage rose 5.2% from a year ago.
Yet rising consumer prices are eating away at all of those wage gains, and even some, for most Americans. With gasoline prices steadily falling over the past few months, the inflation rate has come down from a 40-year high of 9.1% in June. However, the consumer price index still rose 8.3% in August compared to a year earlier.
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The IBD/TIPP poll finds that only 22% of adults say their wages have kept pace with inflation, while 51% say they have not. Meanwhile, 90% of Americans are concerned about the path of inflation over the next 12 months.
However, the share of Americans concerned about gasoline prices fell to 39% from 50% in August and a peak of 59% in June.
The IBD/TIPP financial stress index fell nine tenths of a point to 67.6 in September. That’s still not too far off the April 2020 record of 69.8 in polls dating back to December 2007. Readings above 50 mean financial stress is mounting.
Despite tight labor markets, the IBD/TIPP survey reveals that 42% of households have at least one member who is unemployed and looking for work, up 2 points from August. Now 34% are worried about the loss of jobs in the household, up 3 points over the month. Taking the overlap into account, the share of job-sensitive households is currently 55%, up 4 points.
Investors look to the US economy
The US economic optimism gauge jumped 10.2 points to 54.5 among self-proclaimed investors, returning to bullish territory, after falling to a 6-year low in August.
The rebound in sentiment came despite a tough run for equities in recent weeks, as Federal Reserve chief Jerome Powell signaled that interest rates would stay higher for longer. However, market sentiment improved ahead of Tuesday’s consumer price index report, which was expected to show a second month of subdued inflation.
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Investors remain much more optimistic than non-investors. Among non-investors, the IBD/TIPP index gained 5 points to 39.8, solidly pessimistic.
The September IBD/TIPP poll reflects online polls conducted with 1,277 adults from September 7-9. The results are accompanied by a credibility interval of +/- 2.8 points.
Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.
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