Economic Pessimism Returns Despite Vaccine, Dow Jones High: IBD/TIPP

The Dow Jones taking out 30,000, and Pfizer and Moderna vaccine trials achieving up to 95% effectiveness haven't stopped Americans' view of the U.S. economy's outlook from slipping into pessimistic territory, the December IBD/TIPP Poll finds. The growing toll of the coronavirus pandemic, the job market slowdown, and the lack of new federal stimulus likely kept Americans from focusing on the light at the end of the tunnel.

The IBD/TIPP Economic Optimism Index registered 49, dipping one point from the neutral 50 level in November. A surge in optimism in early October had lifted the index to 55.2.

Congress now appears likely to agree on a moderate-sized stimulus package, which will extend eligibility for unemployment benefits. The emerging bill isn't expected to pad benefits, as the March coronavirus bill did. Even so, it could provide critical relief for millions of long-term unemployed workers who have exhausted, or are close to exhausting eligibility for benefits.

Dow Jones Record Fails To Boost Economic Optimism

The Dow Jones Industrial Average finally topped its pre-coronavirus high of 29,569 on Nov. 9, then eclipsed 30,000 for the first time on Nov. 24. Rising stock prices have investors in a good mood. Among Americans with at least $10,000 in household-owned equities or mutual funds, the IBD/TIPP Economic Optimism Index ticked up seven-tenths of a point to 58.2. However, among noninvestors, the IBD/TIPP index sank deeper into pessimistic territory, falling 2.1 points to 43.4.

The IBD/TIPP Poll finds a wide divergence in economic optimism based on income. Americans earning up to $75,000 a year are pretty pessimistic, with Economic Optimism Index readings of 43.1 to 45.7. Meanwhile, those earning above $75,000 remain strongly optimistic at 62.5.

Coronavirus Jobs Recovery Still Has A Long Way To Go

Last Friday's jobs report showed that U.S. employers added just 245,000 jobs in November, about half as many as expected. Meanwhile, the Labor Department's survey of households showed the unemployment rate edging down to 6.7%. But the decline came about because more people stopped looking for work (400,000) than lost jobs (74,000).

Employers have added back 12.3 million jobs since the April bottom. However, payrolls are still 9.8 million below their February peak.

The IBD/TIPP Poll finds that 41% of households have at least one member who is out of work and looking for employment. Another 42% are concerned about job loss in the household. Factoring in the overlap, the share of job-sensitive households is currently 58%.

Meanwhile, the IBD/TIPP Financial Related Stress Index dipped 1.3 points in December to 65.4, still the second highest reading since April. Readings above 50 reflect rising stress.

Yet Americans favor measures to restrain the spread of the coronavirus, even at a cost to the U.S. economy, by a 59%-30% margin.

2020 Election Shifts Views Of U.S. Economy

Political views are always a factor in how Americans view the U.S. economy. Under President Obama, Republicans were invariably more downbeat about the outlook, just as they have been more optimistic under President Trump — until now.

With President-elect Joe Biden set to take the reins, IBD/TIPP Economic Optimism Index readings showed Democrats turning optimistic in December (up 6.8 points to 55.9) and Republicans growing pessimistic (down 9.9 points to 48). The IBD/TIPP Poll readings were the highest for Democrats and lowest for Republicans since November 2016.

Meanwhile, independents grew a touch more pessimistic (down one point to 40.3).

Economic Optimism Index Components

The IBD/TIPP Economic Optimism Index is a composite of three major subindexes. They track views of near-term prospects for the U.S. economy, the outlook for personal finances, and views of how well government economic policies are working.

The six-month outlook for the U.S. economy dipped seven-tenths of a point to 46.3. The six-month economic outlook index hit a 14-year high of 57 in February, then tumbled as low as 37.3 in July.

The personal finances subindex rose eight-tenths of a point to 56.4, moderately optimistic. The index hit a crisis low of 49.8 in June. January 2020 saw a 15-month high of 64.6 points before the coronavirus spread outside China.

The federal policies subindex fell 2.9 points to 44.4. February's 57.9 reading was the highest since June 2002. Before the coronavirus hit, there was broad support for the Trump economy.

The December IBD/TIPP Poll reflects an online survey of 1,209 adults from Dec. 1-3.

Please follow Jed Graham on Twitter at @IBD_JGraham for coverage of economic policy and financial markets.