2008 record      

 

Americans’ views of the economy brightened somewhat in November, as a de-escalation in the U.S.-China trade dispute and continued job growth temper concerns over a potential recession, according to the latest reading of the IBD/TIPP Economic Optimism Index.

Why it Matters: Consumer spending, which accounts for around 70 percent of U.S. economic activity, has largely powered the economy amid weakening business investment and falling exports. As a result, indicators of consumer confidence are being closely monitored for signs of sustained economic growth.

By the Numbers: The IBD/TIPP Economic Optimism Index increased by 0.3 point, or 0.6 percent, this month to a reading of 52.9, the second straight monthly gain in the reading. The Index has now recorded a score in positive territory (above the baseline level of 50) for a record 38 consecutive months, suggesting that consumer spending will remain robust into the near term.

Despite the continued strength in the headline Index, longer-term indicators suggest that the U.S consumer may be showing signs of fatigue. For the third month in a row, all three of the Index’s moving averages posted declines in November. Also, the three-month average (52.1) has dropped below both the six-month average (53.5) and the longer-term 12-month average (53.7), indicating a potential deceleration in consumer confidence levels in the near term.

Besides the headline indicator, TechnoMetrica also tracks three key subindexes, which provide a deeper insight into Americans’ perceptions of the U.S. economy: the Six-Month Economic Outlook, the Personal Financial Outlook, and the Confidence in Federal Economic Policies components.

Consumers’ expectations for the economy in the near term improved this month, amid a collective sigh of relief over the recent pause in the U.S.-China trade conflict. The Six-Month Economic Outlook component, a measure of consumers’ short-term prospects for the economy, climbed 3.5 points (8.0 percent) in November, to a three-month high of 47.0.

Americans remain highly upbeat about their financial prospects, providing further evidence that consumer spending should remain robust going forward. In November, the Personal Financial Outlook component, a gauge of Americans’ views on their personal finances, increased for the second month in a row, gaining 1.1 points (1.8 percent) to a reading of 61.7, the highest since August.

Meanwhile, Americans’ satisfaction with federal fiscal policies retreated in November, amid lingering uncertainty over trade policies and an escalating impeachment inquiry into President Donald Trump. This month, the Confidence in Federal Economic Policies component, which monitors public sentiment towards the government’s economic policies, fell by 3.5 points (6.5 percent) to a near-neutral score of 50.1, the lowest since June.

Between the Lines: The strong performance exhibited by the headline Index this month should allay concerns that the economy is heading for a recession in the immediate future. The November Index is 8.5 points above the reading of 44.4 registered in December 2007, which marked the beginning of the Great Recession. Thus, the current economic expansion, the longest in U.S. history, should continue into the foreseeable future, supported largely by a resilient U.S. consumer.

Our data shows that resilience is broad-based. In November, 16 of the 21 demographic groups monitored by our survey posted Index readings in positive territory, while 14 segments showed improvement in consumer confidence levels.

The Big Picture: Despite fears over a possible slowdown, the economy continues to create jobs at a healthy pace. In October, U.S. businesses added a solid 128,000 new payrolls, soundly beating economists’ expectations for 75,000 jobs. Also, the unemployment rate remains near a 50-year low and has hovered below 4 percent for 20 consecutive months through October.

A tightening labor market has translated into rising incomes, lifting consumers’ spending power. A recent study based on Census Bureau data found that median household income in the U.S. reached a record high of $66,214 in September, up 3.3 percent year-over-year. The average household has seen their incomes rise by $5,227 between January 2017, when President Donald Trump first took office, and September 2019. In comparison, median household income grew by $1,043 in eight years under President Barack Obama.

Consumer confidence also received a boost from easing trade tensions between the U.S. and China. After 15 months of tit-for-tat trade tariffs, the two nations reached a “Phase 1” agreement that essentially hit the pause button on further tariff increases. The deal should provide relief for U.S. farmers and businesses, as well as consumers.

Under the Microscope: Consumer views on the economy remain largely divided along partisan lines. Republicans continue to report sky-high levels of consumer confidence, posting an Index reading of 74.5 in November, up from 72.7 in October. Democrats, on the other hand, remain overwhelmingly pessimistic about the economy, although confidence levels edged higher this month, from 34.7 to 35.6. Meanwhile, Independents exhibit a more measured view of economic conditions, with an Index reading of 51.1, down slightly from October.

The Bottom Line: Buoyed by a persistently strong labor market, the U.S consumer should continue driving economic growth into the new year. However, escalating political tensions in Washington, D.C., and growing uncertainty over the 2020 election may weigh on consumer spending in the near future.

About the Index: The IBD/TIPP Economic Optimism Index reflects responses from 903 adults contacted via mobile phones and landlines from Oct. 24-31 and carries a 3.3-point margin of error. The poll was conducted by TechnoMetrica for Investor's Business Daily.

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