The IBD/TIPP Economic Optimism Index slid 5.4 points to 53.2 in early June, an abrupt comedown from May's 15-year high. President Donald Trump's decision to escalate the China trade war by hiking tariffs on May 10 loomed large in the reversal.
While the Economic Optimism Index remained moderately above the neutral 50 level, Americans' six-month economic outlook turned pessimistic.
Economic Optimism Follows Trade War Twists And Turns
May's 15-year peak for Economic Optimism reflected polling through May 5. That day, Trump reignited the China trade war with a pair of tweets. Up to that point, the Trump administration had convinced the public that a China trade deal was assured.
This month's dive in Economic Optimism reflects 906 responses from May 30 to June 7. Some of the negativity may already have dissipated. As the polling period began, it looked like Trump might open up another major trade war front with Mexico. But Trump announced a deal late Friday that will have Mexico deploy its national guard to stem the flow of migrants to the U.S. border. On top of that, the Dow Jones has been on a 6-session, nearly 1,250-point winning streak.
Trump Gets Failing Grade For China Trade War
Back in May, the IBD/TIPP Poll found that 40% rated Trump's handling of the China trade issue as excellent or good, while 39% judged it to be poor or unacceptable.
The IBD/TIPP Poll in June found that 45% gave Trump failing marks. A stable 39% praised his handling of China trade.
Meanwhile, 52% of respondents said tariffs on Chinese goods are hurting the U.S. economy, while 22% see them — like Trump does — as helping the U.S. economy.
Economic Optimism Index Components
The IBD/TIPP Economic Optimism Index is a composite of three major subindexes. They track views of near-term economic prospects, the outlook for personal finances, and views of how well government economic policies are working.
The six-month outlook gauge for the economy slid 8.1 points to 47.7, the fifth pessimistic reading in the past seven months. The subindex hit a 13-year high of 57.5 in February 2018 on the heels of tax cuts.
The six-month personal financial outlook index rose 3.3 points to 61.1. The October reading of 66.7, coming as the Dow Jones hit a record high just below 27,000, was an all-time best for the IBD/TIPP Poll, which dates back to 2001.
Meanwhile, the measure of confidence in federal economic policies fell 4.9 points to 50.7. May's 55.6 reading was the highest since April 2003. That topped the 13-year high of 53.7 in November, before the government shutdown.
Economic Views Highly Partisan
Americans' view of the economy became even more partisan in June.
The Economic Optimism Index was little changed for Republicans, down 0.5 point to 77. Democrats' EOI tumbled 9.6 points to 32.9. For independents, the reading slid 3.5 point to 51.9. As for the six-month outlook, Democrats' were the most pessimistic in the IBD/TIPP Poll's history going back to 2007, crashing 15 points to 23.6.
Small Business Optimism Rises
Separately, the National Federation of Independent Business said its Small Business Optimism Index rose 1.5 points to 105.0, the highest since October.
"Uncertainty levels remain high, but owners are focused on a very busy Main Street," the group said. The share of businesses with plans to make capital outlays in the next few months rose 3 points to 30, a healthy figure.
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