The IBD/TIPP Economic Optimism Index declined 4.0 points, or 7.8% in February, posting a reading of 47.5 vs. 51.5 in January.  The index is 0.8 points above its 12-month average of 46.7, 3.1 points above its reading of 44.4 in December 2007 when the economy entered the recession, and 1.7 points below its all-time average of 49.2.

 Note: Index readings above 50 indicate optimism; below 50 indicate pessimism.

The IBD/TIPP Economic Optimism Index has a good track record of foreshadowing the confidence indicators put out later each month by the University of Michigan and The Conference Board.  IBD/TIPP conducted the national poll of 856 adults from January 25 to February 5. The margin of error is +/-3.4 percentage points.

The IBD/TIPP Economic Optimism Index has three key components.  This month, all three components declined.

    • The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, declined 6.2 points, or 11.7%, to 46.7.  The sub-index was 32.1 when the economy entered the last recession in December 2007.

    • The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, fell 3.4 points, or 5.9%, to 53.8.

    • Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, dropped 2.2 points, or 5.0%, to 42.1.

“There are four reasons behind the decline in the Economic Optimism Index,” said Raghavan Mayur, president of TechnoMetrica, IBD's polling partner. “First, low gasoline prices may not be enough to keep confidence high. In addition, prices are beginning to increase.  Also, bad weather hurts the earning potential of many.  Third, the job market may still be soft coming off of a holiday season, which means retailers may be cutting back temporary employment. In our poll, 24%, or one in four households, have a person looking for a full-time job.  Finally, the stock market is under pressure.”

“The broad decline in all three of the major optimism subindexes suggests Americans’ optimism faded fast after rising for two months following the Republicans’ big win in November,” said Terry Jones, associate editor of Investor’s Business Daily. “Amid rising chaos overseas and troubled economies everywhere, Americans may be signaling they’re worried about a lack of clear direction both here and abroad.”

The Breakdown

This month, five of the 21 demographic groups that IBD/TIPP tracks were above 50 on the Economic Optimism Index. One group improved and twenty declined.

On the Economic Outlook component, five of the 21 groups that IBD/TIPP tracks scored in optimistic territory.  All twenty-one groups declined.
On the Personal Financial component, seventeen of the 21 groups IBD/TIPP tracks scored in optimistic territory. Three groups increased and eighteen declined.

On the Federal Policies component, two of the 21 demographic groups tracked were above 50.  Six groups advanced on the component and fourteen declined.  One did not change.

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