Consumer Confidence Just Broke Yearlong Covid Streak: IBD/TIPP

Americans are a little more optimistic about the outlook for the U.S. economy as vaccinations pick up speed and Covid cases come off their peak. The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, gained 1.8 points to 51.9 in February. Readings above the neutral 50 level reflect optimism.

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Consumer confidence rose in consecutive months for the first time since February 2020, just before alarm grew over the spread of the coronavirus in the U.S.

The IBD/TIPP Financial Related Stress Index eased 2.1 points to 61.6 in February, likely helped by the $900 billion stimulus package signed into law Dec. 27. Readings above 50 reflect rising stress. The stimulus bill extended unemployment benefits with a $300 weekly boost and gave $600 stimulus checks per person to low- and middle-income households.

Stimulus and vaccine optimism are helping to buoy consumer confidence as Americans look past the current weakness in the U.S. economy. The IBD/TIPP Poll finds that 43% of households have at least one member who is out of work and looking for employment. Another 38% are concerned about job loss in the household. Factoring in the overlap, the share of job-sensitive households is currently 57%.

Joe Biden Enjoys Something Trump Never Had, Poll Shows

Investor Optimism Slips With Dow Jones

The Dow Jones Industrial Average closed out 2020 at a record high, then pushed higher still after the Democratic victories in Georgia revived President-elect Joe Biden’s agenda. But after notching a record close of 31,188 on Jan. 20, the Dow fell six of the next seven sessions to close the month just shy of 30,000. The Dow ended January down 2%, the first decline since October.

The Dow Jones and other indexes have bounced to start off February.

Investors are weighing prospects for a supercharged burst of growth for the U.S. economy, as the pandemic recedes and Democrats step on the fiscal accelerator, against expectations for higher taxes and interest rates.

Among Americans with at least $10,000 in household-owned equities or mutual funds, the IBD/TIPP Economic Optimism Index pulled back 2.1 points to 57.6. Though solidly optimistic, it’s the lowest since November’s postelection poll, when it appeared Biden would govern with a divided Congress.

However, among noninvestors, the IBD/TIPP index jumped 4.3 points to 48.2. While still modestly pessimistic, that’s the highest consumer confidence reading among noninvestors since early October, before the fall-winter coronavirus wave began to spiral.

2020 Election Shifts Views Of U.S. Economy

Political views are always a factor in how Americans view the U.S. economy. Under President Obama, Republicans were invariably more downbeat about the outlook, just as they had been more optimistic under President Trump until his defeat began to sink in by December’s IBD/TIPP Poll.

With Joe Biden taking the reins, the IBD/TIPP Economic Optimism Index shows Democrats growing increasingly optimistic in February (up 6.1 points to 67.6). Republicans are growing more pessimistic (down 10.7 points to 33.6). The IBD/TIPP Poll readings were the highest for Democrats since February 2013 and lowest for Republicans since July 2016.

Meanwhile, the IBD/TIPP consumer confidence gauge showed easing pessimism among independents (up 3.1 points to 43.9).

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 rose 2.3 points to 49.5, a touch pessimistic. 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 was flat at 56.5, moderately optimistic. The index hit a crisis low of 49.8 in June. January 2020 saw a 15-month high of 64.6 points before the coronavirus pandemic took hold.

The federal policies subindex rose 3.1 points to 49.7, a four-month high. The 57.9 reading in February 2020, before the coronavirus hit, was the highest since June 2002.

The February IBD/TIPP Poll reflects online surveys of 1,262 adults from Jan. 27-29.

Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.

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