Americans have turned slightly optimistic about the outlook for the U.S. economy as the vaccine rollout, stimulus checks and new highs for the Dow Jones ease the hit from Covid-related restrictions and layoffs. The IBD/TIPP Economic Optimism Index rose 1.1 points to 50.1, peeking above the 50 neutral level, even as the pandemic's toll reaches new heights.
XOn Dec. 27, President Trump signed a $900 billion stimulus package, adding $300 to unemployment benefits and giving $600 checks per person to low- and middle-income households. The bill also extended an eviction moratorium and provided more funds for struggling small businesses.
The IBD/TIPP Financial Related Stress Index eased 1.7 points to 63.7 in January, the lowest level since September. Readings above 50 reflect rising stress.
Democratic victories in both Jan. 5 Georgia runoffs handed Democrats effective control of the Senate. That assures massive additional fiscal stimulus — including likely bigger stimulus checks — along with some tax hikes, in the months ahead.
The uptick in the Economic Optimism Index came despite the stalling jobs recovery. The U.S. economy lost 140,000 jobs in December, as restaurants and bars slashed 372,000 positions. However, most other industries continued to hire last month.
Still, small businesses were increasingly gloomy as 2020 came to a close. The NFIB Small Business Optimism Index released Tuesday declined 5.5 points in December to 95.9, with smaller firms turning negative about future sales.
Dow Jones Record Boosts Investor Optimism
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. Rising stock prices have investors in a good mood. Among Americans with at least $10,000 in household-owned equities or mutual funds, the IBD/TIPP Economic Optimism Index rose 1.5 points to 59.7.
However, among noninvestors, the IBD/TIPP index remained solidly pessimistic, edging up a half-point to 43.9.
Americans earning up to $75,000 a year are pretty pessimistic, with Economic Optimism Index readings of 42.9 to 45.7. Meanwhile, those earning above $75,000 remain strongly optimistic at 61.0.
The wide divergence in U.S. economic optimism based on income at least partly reflects the coronavirus pandemic's toll on modest-income service-sector jobs.
Employers have added back 12.3 million jobs since the April bottom. However, payrolls are still 9.8 million below their February peak.
The IBD/TIPP Poll finds that 43% of households have at least one member who is out of work and looking for employment. Another 40% are concerned about job loss in the household. Factoring in the overlap, the share of job-sensitive households is currently 56%.
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.
With President-elect Joe Biden set to take the reins, the IBD/TIPP Economic Optimism Index shows Democrats turning increasingly optimistic in January (up 5.6 points to 61.5), surging from 32.9 in September. Republicans are growing more pessimistic (down 3.7 points to 44.3). The IBD/TIPP Poll readings were the highest for Democrats and lowest for Republicans since November 2016.
Meanwhile, independents grew a touch less pessimistic (up a half-point to 40.8).
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 nine-tenths of a point to 47.2. The six-month economic outlook index hit a 14-year high of 57 in February, then tumbled as low as 37.3 in July.
The personal finances subindex rose one-tenth of a point to 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 spread outside China.
The federal policies subindex rose 2.2 points to 46.6. February's 57.9 reading was the highest since June 2002. Before the coronavirus hit, there was broad support for the Trump economy.
The January IBD/TIPP Poll reflects an online survey of 1,413 adults from Jan. 6-8.
Please follow Jed Graham on Twitter at @IBD_JGraham for coverage of economic policy and financial markets.
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