Headline Index Eases to 45.1 After July's Surge; Personal Financial and Federal Policy Components Reach Highs Not Seen Since March as the Six-Month Outlook Retreats and Financial Stress Rises 3.0%
Consumer sentiment held near its recovered level in August as the RealClearMarkets/TIPP Economic Optimism Index, the first monthly reading of U.S. consumer confidence, eased to 45.1 from 45.5 in July, a slight 0.4-point (0.9%) decline. After July's sharp rebound, the near-flat reading suggests consumers are consolidating last month's gains rather than extending or reversing them.
The index has now remained below the neutral 50 mark for twelve consecutive months, keeping the nation in what we classify as the pessimism zone.
August's reading is 8.1% below the 307-month historical average of 49.1, indicating that even after the summer's improvement, economic optimism remains below its long-term norm.
Investor confidence edged up to 55.7 from 55.3 in July, holding above the neutral 50 mark for a second consecutive month, while non-investor optimism slipped to 40.4 from 40.8. The confidence gap widened from 14.5 to 15.3 points as investors extended their advantage over non-investors.
The RCM/TIPP Economic Optimism Index has a strong track record of anticipating the consumer confidence indicators later released 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 1,463 adults for the August index from July 28 to August 1. The online survey was conducted using TIPP's panel network. The margin of error is ±2.9 percentage points.
The index is measured on a scale from 0 to 100. Readings above 50 indicate optimism, while those below 50 signal pessimism. A score of 50 is neutral.
The RCM/TIPP Economic Optimism Index has three key components. In August, the picture was mixed: two of the three rose, led by personal finances, while the forward-looking Six-Month Outlook gave back part of July's jump.
- The Six-Month Economic Outlook, which measures how consumers perceive the economy's prospects in the next six months, declined 5.2%, from 42.1 in July to 39.9 in August, retreating after last month's seven-month high and giving back roughly half of July's gain.
- The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, rose 1.5%, from 52.2 in July to 53.0 in August, its highest reading since March and comfortably above the neutral 50 line.
- Confidence in Federal Economic Policies, a proprietary RCM/TIPP measure of views on the effectiveness of government economic policies, rose 0.5%, from 42.1 in July to 42.3 in August, a third consecutive monthly gain and its highest reading since March.
RCM/TIPP also releases a companion measure, the Financial-Related Stress Index, the only monthly metric tracking Americans' financial stress. The index rose 1.9 points, or 3.0%, from 62.8 in July to 64.7 in August, resuming its climb as financial strain increased for 18 of the 21 demographic groups we track.
The higher the number, the more stress. Readings above 50 signal increased stress, while those below 50 indicate lower stress. A reading of 50 is 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.
The index has averaged 60.5 since December 2007. August's reading of 64.7 exceeds the long-term average by 6.9%, signaling that financial stress remains well above its historical norm and has risen in two of the last three months.
“The proverbial fires are always burning, yet the U.S. economy is always growing despite. This is particularly striking in the present due to the ferocity of the fires: Iran, tariffs, dollar uncertainty, uncertainty about the midterms. It arguably lends validity to the increasingly common view that the changes happening in the real economy (think AI advances) will happily overwhelm the ability of politicians to mess things up,” said John Tamny, the editor of RealClearMarkets.
“August is a month of consolidation rather than continued acceleration,” said Raghavan Mayur, president of TechnoMetrica. “After July's broad rebound, the headline index held most of its gain, easing just 0.4 points to 45.1. The composition was encouraging in places: Americans' assessment of their own finances rose to its highest since March, and confidence in federal economic policy improved for a third straight month. But the forward-looking Six-Month Outlook gave back part of last month's jump, and financial stress climbed again, rising for 18 of the 21 groups we track. The recovery from the spring lows is holding, but its momentum has cooled, and the index remains below 50 for a twelfth consecutive month.”
Economic Optimism Index Breakdown
This month, five of the 21 demographic groups tracked by RCM/TIPP, including age, gender, and income, are in positive territory, with scores above 50 on the Economic Optimism Index. For comparison, there were seven in July, two in June, and three in May. Eight groups improved on the index, compared to seventeen in July, nine in June, and nine in May.
For the Six-Month Economic Outlook component, one of the 21 groups tracked by RCM/TIPP scored in optimistic territory, compared to three in July, one in June, and one in May. Economic Outlook sentiment improved for four groups, compared to all 21 in July, nine in June, and eight in May.
For the Personal Financial component, thirteen of the 21 groups tracked by RCM/TIPP were optimistic, compared to thirteen in July, nine in June, and ten in May. Ten groups rose compared to sixteen in July, nine in June, and thirteen in May.
For the Federal Policies component, four of the 21 groups exceeded 50.0, the same as July, compared to two in June and two in May. Eleven groups rose compared to fifteen in July, nine in June, and twelve in May.
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 six 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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