Despite stocks’ rocky start to the year and difficult days for U.S. manufacturing, Americans’ optimism about the economy grew, according to the latest IBD/TIPP Economic Optimism Index.
The Economic Optimism Index rose 0.5 point to 47.8, still below the neutral 50 level, but the highest reading since July. The increase came despite Americans’ more pessimistic attitudes toward the economy’s six-month outlook, down 0.4 point to 42.5, and their personal financial outlook, down 0.2 point to 58.0. But respondents were more upbeat about federal economic policies, which gained 2.1 points to 42.8, still deeply negative but the highest since July.
Stocks recovered to a degree during the last week of January, but the major indexes still ended down for the month thanks to a brutal first three weeks. Gasoline prices remain low as crude oil trades around $30 per barrel, down about 70% from June 2014’s levels. Housing prices continue to rise.
Consumer confidence has been a relative bright spot for the U.S. economy as the industrials struggle with an energy sector crash, weak global demand and a strong dollar. The ISM manufacturing index for January, released Monday, showed the sector in contraction for a third straight month. General Electric (GE), United Technologies (UTX) and Caterpillar (CAT) in recent weeks all reported Q4 and full-year earnings highlighting industrial woes.
Fourth-quarter gross domestic product grew at a meager 0.7% annual rate amid those headwinds.
Consumer Spending Growth Slowing
Inflation-adjusted consumer spending rose at a 2.2% pace in the fourth quarter, though that was down from Q3’s 3% and Q3’s 3.2%. Also, December consumer outlays were flat, with spending on autos and other durable goods down. Apple (AAPL) reported last week that iPhone sales were flat worldwide. Apple, which is seeing iPad sales fall faster than the tablet market, forecast a rare revenue decline that quarter. Auto sales, while at a high level, were a modest drag on Q4 growth. General Motors (GM) and other automakers report January U.S. sales today.
Economic optimism continues to be predictably partisan. Democrats’ EOI reading was 59.6 vs. Republicans’ 35.4, but both were down from January’s reading. Independents’ EOI reading rose 3 points to 46.2, its highest since May. Independents’ economic optimism hasn’t been in positive territory since a one-month blip in January 2011.
The investor-noninvestor gap narrowed in the latest poll. Self-described investors’ EOI reading rose 1.1 point to 46.9 after tumbling 1.5 points to 45.8 last month. Meanwhile noninvestors, which shot up 3.1 points last month, dipped 0.8 point to 48.5.
Forty percent of Americans think the U.S. currently is in a recession while 56% do not. In early January, 38% believed we were in a recession against 55% who didn’t.
The IBD/TIPP Poll was conducted Jan. 22-27, surveying 914 Americans, giving it an overall margin of error of +/- 3.3 percentage points. The poll was taken by live interviewers using both land and cell phones.
For complete results of the IBD/TIPP Poll, click here.