Financial stress eases for the fourth month.
The RealClearMarkets/TIPP Economic Optimism Index, a leading gauge of consumer sentiment, dropped 1.6% in February to 44.0. The index has remained in negative territory for 30 consecutive months since September 2021.
Despite the recent stock market gains, optimism among investors slid 10.2% from 54.9 in January to 49.3 in February, while it gained by 5.1% among non-investors, from 39.3 in January to 41.3 in February.
The RCM/TIPP Economic Optimism Index has established a strong track record of foreshadowing the confidence indicators issued later each month by the University of Michigan and The Conference Board. From February 2001 to October 2023, TIPP released this index monthly in collaboration with its former sponsor and media partner, Investor's Business Daily.
RCM/TIPP surveyed 1,402 adults from January 31 to February 2 for the February index. The online survey utilized TIPP's network of panels to obtain the sample.
The index and its components range from 0 to 100. A reading above 50.0 signals optimism and a reading below 50.0 indicates pessimism. 50 is neutral.
The RCM/TIPP Economic Optimism Index has three key components. In February, two of these components declined, while one showed improvement.
- The Six-Month Economic Outlook, which measures how consumers perceive the economy's prospects in the next six months, improved from 39.3 in January to 39.6 in February, marking a 0.8% increase. In October 2023, this component posted 28.7, its lowest reading since the index debuted in February 2001.
- The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, dropped 2.9% from its previous reading of 55.0 to 53.4 this month. In January, the component crossed above the neutral reading of 50.0 and has since remained in positive territory for the second month.
- Confidence in Federal Economic Policies, a proprietary RCM/TIPP measure of views on the effectiveness of government economic policies, declined from 39.8 in January to 39.0, reflecting a 2.0% drop.
RCM/TIPP also releases our companion index, called the RCM/TIPP Financial-Related Stress Index, the only metric to track the financial stress felt by Americans monthly.
The Financial-Related Stress Index dropped by 0.7 points, or 1.1%, from 64.7 in January to 64.0 in February. In October, the metric recorded 70.5, its highest reading since December 2008 (71.0). Since October, the index has declined from 70.5 to 64.0 for four consecutive months.
The higher the number, the more stress. Readings above 50 signal increased stress, while those below 50 indicate lower stress, with 50 considered neutral. For context, the last time the index posted below 50.0 was before the onset of the pandemic in February 2020, when it stood at 48.1.
"It's too easily forgotten that the people are the market, so when sentiment shifts, we're wise to look for sources of the shift. This latest reading will instigate the search.," said John Tamny, the editor of RealClearMarkets.
"Despite the strong performance of the stock market, investor optimism moderated in the early February survey. The share of respondents who think the U.S. is in a recession remained steady at 43% in February, and the share who think the economy is improving also stayed at 30% from 23%," said Raghavan Mayur, president of TechnoMetrica, who directed the survey. "Financial stress eased for the fourth month in a row. The national debt, ongoing layoffs, and the unrest in the Middle East and associated supply chain woes pose a threat to the U.S. economy."
Economic Optimism Index Breakdown
This month, only two of the 21 demographic groups we track, including age, gender, race, and education, are in positive territory above 50 on the Economic Optimism Index. In contrast, there were five in January, two in December, and six in November. Ten of the 21 groups showed improvement on the index.
For the Six-Month Economic Outlook component, only one of the 21 groups that RCM/TIPP tracks scored in optimistic territory, compared to four in January and one in December. Economic Outlook sentiment improved for 11 of the 21 groups, compared to 19 in January, eight in December, and 20 in November.
For the Personal Financial component, 18 of the 21 groups that RCM/TIPP tracks were in optimistic territory compared to 15 in January, and 10 in December. Six groups rose in February, after 18 in January and eight in December.
For the Federal Policies component, only one of the 21 groups was above 50.0, compared to four in January and one in December. Twelve groups rose vs. 17 in January and six in December
