Recession Vibe Deepens For U.S. Economy: IBD/TIPP

Despite strong job growth, a majority of Americans think the economy is in a recession, according to the IBD/TIPP Poll.

The new IBD/TIPP poll shows that a majority of Americans (62%) believe the U.S. is in recession. This is up from 58% one month ago, and 53% in June, as well as 48% in May. The IBD/TIPP Economic Optimism Index (an early-month read on consumer confidence) fell four tenths of a percentage point to 38.1, matching the reading from June.

Pessimism has been in full force for the 12th consecutive month as inflation offsets wage increases. Positive readings are those above neutral 50.

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.

The six-month forecast for the U.S. economic outlook increased by four-tenths a point in August to 32.6. This subindex reached its lowest level in June since July 2008 when the U.S. was in a deep recession. The fact that the economy has seen consecutive monthly gains is encouraging. However, the outlook for near-term growth remains pessimistic.

The subindex for personal finances rose 1.2 points, to 46.5. This is a modest rebound after the reading in July was the lowest ever recorded for the IBD/TIPP Economic Optimism Index, dating back to 2002. The views of personal finances reached a bullish level of 59.7 in July.

The support for federal economic policy fell 2.7 points, to 35.3, the lowest since January 2014. The gauge reached a high of 56.4 in June last year, following more rounds on 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. A flurry legislation has not yet had a positive effect. This includes a bill that would boost the domestic chip production, and the Inflation Reduction Act which is on the verge of being passed.

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The second-quarter GDP data, which revealed that the U.S. economic growth was down for a second consecutive quarter, may have given a boost to the recession view.

The gloomy outlook is in contrast to the July jobs report that was released on August 5, which revealed the U.S. added 528,000 jobs during the month, while the unemployment rate fell to 3.5% - a record low for a half century. The average hourly salary rose by a solid 5.2% compared to a year earlier.

The strength of the U.S. labor market was reported to have debunked the idea that the U.S. is in recession. The data are subject to revision, and the overall picture is more confusing. The Labor Department's survey of employers shows a rise in jobs by 1.7 million over the last four months. However, the survey of households shows a decrease in employment by 168,000 Americans. New claims for unemployment benefits have increased by more than half since mid-March.

For most Americans, the biggest problem is the increase in consumer prices, which is eroding all of their wage gains and more. In June, the consumer price index increased by 9.1% compared to a year earlier. This was the largest increase in over 40 years. Gas prices have been falling since mid-June so the inflation rate for July should be lower.

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According to the IBD/TIPP poll, only 17% of adult respondents say that their wages have kept up with inflation. 54% disagree. 90 percent of Americans are worried about inflation's trajectory over the next year.

The IBD/TIPP Financial-Related Stress Index dropped 0.8 points to 68.5 in august. This is still not far from the record high of 69.8 for April 2020, according to polling dating back to December 2007. Financial stress increases when the readings are above 50.

The IBD/TIPP poll found that despite the tight labor market, 40% of households had at least one person who was unemployed and seeking employment. This is down by 1 point since July. In the IBD/TIPP Poll, 31% of households are now concerned about losing their job. This is a 5 point drop from the previous month. When you take into account the overlap, 51% of households are job-sensitive, a 2 point drop from July.

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Investors' views on the economy have weakened over the last month, despite a moderated oil price and an uptick in S&P 500.

The U.S. Economic Optimism Index fell 4 points, to 44.3 for self-described Investors. This is the lowest level in nearly a year. IBD/TIPP considers respondents as investors if they say that their household owns mutual funds or stocks worth at least $10,000.

In July, Dow Jones rose 6.7%, S&P 500 gained 9.1%, and Nasdaq Composite was up 12.35%. As of Monday, the Dow Jones was still down 9.65% on the year. S&P 500 is down 13.1%, and Nasdaq is down 19.2%.

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Investors remain much more optimistic than noninvestors. Noninvestors' IBD/TIPP Index rose 1.3 points, to 34.8. This is a deeply pessimistic index.

The IBD/TIPP August Poll is based on online surveys conducted by 1,335 adults between Aug. 4 and 6. The results are accompanied by a credibility range of +/-2.8 points.

Follow Jed Graham @URL on Twitter for economic policy and financial market coverage.

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