The RealClearMarkets/TIPP Economic Optimism Index, a leading gauge of consumer sentiment, dropped sharply 3.2% in May to 41.8. Since September 2021, the index has remained in negative territory for 33 consecutive months.
Optimism among investors declined 15.7% from 54.9 in April to 46.3 in May, while it improved by 9.6% among non-investors, from 36.6 in April to 40.1 in May.
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 1,435 adults from May 1 to May 3 for the May 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 May, 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, dropped sharply from 38.8 in April to 35.7 in May, marking an 8.0% decrease. 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, improved slightly by 1.4% from its previous reading of 50.6 in April to 51.3 this month. In January, the component crossed above the neutral reading of 50.0 and has since remained in positive territory for the fifth month.
- Confidence in Federal Economic Policies, a proprietary RCM/TIPP measure of views on the effectiveness of government economic policies, declined sharply from 40.3 in April to 38.5 this month, reflecting a 4.5% drop.
RCM/TIPP also releases our companion index, known as the RCM/TIPP Financial-Related Stress Index, the only metric to track the financial stress felt by Americans monthly.
The index increased 1.1 points, or 1.7%, from 65.0 in April to 66.1 in May.
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.
Further, its average since 2010 stands at 59.3. May's reading of 66.1 surpasses this historical average by 11.4%, indicating that Americans are experiencing approximately 11% higher financial stress levels than usual.
Notably, the index peaked at 70.5 in October 2023, marking its highest reading since December 2008 (71.0). Since then, it has declined for the better, reaching 66.1 in May.
“As the dollar reaches highs against other currencies while falling to all-time lows versus the objective measure that is gold, it's difficult to not feel the sharply declining sentiment revealed in the RCM/TIPP Index. No country has ever devalued its way to prosperity, and certainly no countries ever have in the collective sense. Hopefully we're not on the verge of learning yet again the horrors of the absence of currency policy that is 'benign neglect," said John Tamny, the editor of RealClearMarkets.
"The consumer sentiment became gloomier in May as inflation concerns persist. This month, 87% are concerned about inflation. Further, the share of respondents who think the U.S. is in a recession increased slightly to 45%, up from 44% in April, while the share who believe the economy is improving dropped to 25% from 28% last month," said Raghavan Mayur, president of TechnoMetrica, who directed the survey. "Financial stress increased slightly in May. The national debt, ongoing layoffs, food prices, gasoline prices, unrest in the Middle East, and associated supply chain issues threaten the U.S. economy. TechnoMetrica believes that the U.S. will enter an extended period of stagflation in the months ahead.”
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 April, three in March, and two in February. Five of the 21 groups improved on the index, compared to six in April, 10 in March, and 10 in February.
For the Six-Month Economic Outlook component, only one of the 21 groups that RCM/TIPP tracks scored in optimistic territory, compared to two in April, one in March, and one in February. Economic Outlook sentiment improved for four of the 21 groups, compared to nine in April, 10 in March, and 11 in February.
For the Personal Financial component, 12 of the 21 groups that RCM/TIPP tracks were in optimistic territory compared to 11 in April, 16 in March, and 18 in February. 11 groups rose in May, two in April, 12 in March, and six in February.
For the Federal Policies component, only one of the 21 groups was above 50.0, compared to three in April, two in March, and one in February. Five groups rose compared to 17 in April, six in March, and 12 in February.
About TechnoMetrica/TIPP
TIPP is the polling unit of TechnoMetrica, a nationally renowned survey research and market research firm dedicated to providing clients with expert data-driven analysis to facilitate informed decision-making in their businesses. The TIPP Poll is considered the gold standard survey, having the unique distinction of being the most accurate presidential poll in the past five election cycles. The tippinsights unit provides editorials and commentaries on national and international issues, often appearing on the RealClearPolitics website.
About RealClearMarkets
RealClearMarkets (RCM) is a one-stop shop for market-related news, analysis, and commentary. RealClearMarkets collects and publishes business, finance, and economic content from across the ideological spectrum. Site features include Market Data, Off the Street Blogs, Quotes, Research Reports, Videos, Topics, and Facts & Fallacies.
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