Americans’ confidence in the economy climbed to its highest level in more than 16 years this month, buoyed by recent breakthroughs on trade, strong job growth, low-interest rates, and record gains in stocks, according to the latest reading of the Investor’s Business Daily/TIPP Economic Optimism Index, a leading indicator for the health of consumer spending and the economy. Also, February marks the index’s 41st consecutive month in optimistic territory, suggesting that U.S. consumers will continue to power the economy forward in the months ahead.
The IBD/TIPP Economic Optimism Index rose by 2.4 points, or 4.2 percent, in February to a score of 59.8, the highest since January 2004. This is the fifth straight monthly gain in the index, as recession fears fade into the rearview mirror amid de-escalating U.S.-China trade tensions and the Federal Reserve’s easing monetary policy. Also, the index is up almost 19 percent from last February.
The upbeat sentiment towards the U.S economy is shared by nearly all demographic groups covered in the study. Of the 21 segments that Investor’s Business Daily and TechnoMetrica track on a monthly basis, 19 posted an index reading in positive territory this month. An index reading of 50 is neutral, above 50 is positive, and below 50 is negative.
Economic sentiment is brightest in the South (62.0) and Midwest (61.6), likely due to positive developments related to trade, including the recent signing of the “Phase-One” trade deal with China promising relief to U.S. farmers. The West and Northeast regions also remain in optimistic territory, at 56.8 and 56.6, respectively.
Besides the flagship indicator, IBD and TechnoMetrica also monitor three key subindexes measuring different aspects of consumer sentiment. This month, two of the three components increased (the Six-Month Economic Outlook and the Confidence in Federal Economic Policies subindexes), while one declined (the Personal Financial Outlook subindex).
The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, soared 5.9 points, or 11.5 percent, this month to a reading of 57.0, the best score since February 2018. This marks the third straight month in which the measure has posted a reading in positive territory, as a resilient labor market continues to fuel Americans’ optimism about the future of the economy.
The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, dipped slightly from 64.6 to 64.4, following four consecutive monthly gains. However, Americans’ confidence in their finances remains at elevated levels, as the measure remains in optimistic territory for the 76th month in a row. In addition, the subindex is 7.3 percent above last February’s reading of 60.0.
Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, reached its highest level in almost 18 years this month, as more Americans give the current administration credit for the roaring economy. The subindex jumped 1.5 points, or 2.7 percent, this month to 57.9, the highest since June 2002. The measure has posted a score above 50 for 12 straight months, as Americans continue to breathe a collective sigh of relief over the Federal Reserve’s interest rate cuts during 2019.
The IBD/TIPP Economic Optimism Index is compiled from a survey of 908 adults nationwide contacted via mobile phones and landlines from Jan. 23-30 and carries a 3.3-point margin of error.