U.S. Economy Can't Shake Recession Vibe: IBD/TIPP

The U.S. economy is back in a recession vibe a month after falling gas prices and student loan forgiveness fueled a burst of optimism.

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May 14, 2023 • 3 min read

The U.S. recession is back, a month after the fall in gas prices and student loans fueled one of largest jumps in optimism since more than a decade. The IBD/TIPP Economic Optimism Index fell 3.1 points in October to a depressing 41.6.

After matching a 11-year-low in August, the index lost nearly half its September 6.6-point increase. The index has been in pessimistic land, below the neutral 50 level, for fourteen straight months.

The Biden Administration's decision to forgive federal student loans up to $20,000 has increased the gap in optimism between adults aged 18-44 and those over 45.

In October, the IBD Economic Optimism Index for those aged 18-24, 25-44, and 45+ was 53.9, up from August's 43.2, which occurred before President Joe Biden took action on student loans. In October, the index for those aged 45 and over was 31.5 compared to 33.6 in August.

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Share of Americans believing the U.S. is in recession has risen to 61%, up from 59%. Although only slightly below August's 62% of Americans, fears about a recession have been growing since May when 48% believed that a recession was underway.

In October, the IBD/TIPP Financial-Related Stress Index increased 1.9 points to 69.5. This is just below the 69.8 high recorded in December 2007 polls for April 2020. When the readings are above 50, financial stress is increasing.

In September, employers added 263,000 new workers. Wage growth was a solid 5%. Just 22% of adults claim that their wages have kept up with inflation. 54% disagree. 90 percent of Americans are worried about inflation in the coming 12 months.

Concern about the loss of jobs is on the rise. The October IBD/TIPP poll found that 38% of adult respondents are worried about losing their job in the household. This is up from 34% and 31% respectively in September.

Gas prices have also risen again. Prices at the pump are now up to $3.923 per gallon, compared to $3.718 one month ago. California gas prices are soaring due to refinery problems.

Biden Approval Rating Backslides

The IBD/TIPP Economic Optimism Index consists of three subindices. The index tracks the opinions of Americans on near-term economic and financial prospects, as well as their support for government policies.

In October, the U.S. six-month economic outlook fell by 4.1 points and reached a depressing 35.4. This subindex fell to 30.6 in June, the lowest since July 2008 when the U.S. was engulfed in recession.

The subindex for personal finances fell 3.8 points, to 48.2. This is still higher than July's reading of 45.3, which was the lowest in the IBD/TIPP Economic Optimism Index's history dating back to 2002. In July 2021, the views of personal finances reached a bullish reading of 59.7.

In October, the gauge of support for economic policies at the federal level, which had risen 7.4 points in Septembre, fell 1.5 points, to 41.2. The reading of 35.3 in August was the lowest since January 2014. The gauge reached a high of 56.4 in June last year, after additional rounds of stimulus checks. President Biden also pushed for more expansive policies. The Federal Reserve has raised interest rates in an attempt to rein in inflation that stimulus caused.

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The U.S. Economic Optimism index fell 3 points, to 51.5, among self-described investor, but remained bullish, after surging by 10.2 points from a six-year-low in September.

Investors are optimistic despite the recent volatility in the stock market, as the Federal Reserve has tightened monetary policy aggressively to combat the largest inflation outbreak since early 1980s.

The Dow Jones Industrial Average was down 20.6% as of Monday's closing. It had been at its highest level ever since Jan. 4, 2004. S&P 500 was down 24.7% since its peak. The Nasdaq Composite lost 33.4%, after reaching a new 52 week low on Monday.

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IBD's The Big Picture daily column is a great way to stay up to date on market trends and how they affect your trading decisions.

Investors are still far more optimistic than noninvestors. The IBD/TIPP Index fell 5.3 points, to 34.5. This is a very pessimistic index.

The IBD/TIPP October Poll is based on online surveys conducted by 1,376 adults between Oct. 5 and 7. The results are accompanied by a credibility range of +/-2.8 points.

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