U.S. Economic Outlook Darkens As Fed Ratchets Up War On Inflation: IBD/TIPP

Americans’ pessimism over the U.S. economic outlook and the ability of the government to help has reached multiyear depths as inflation pressures intensify, the May IBD/TIPP Poll finds.


The IBD/TIPP Economic Optimism Index, an early monthly read on consumer confidence, slid 4.3 points to 41.2, barely above March’s eight-year low. Pessimism maintained its grip for a ninth straight month. Readings above the neutral 50 level reflect optimism.

Household financial stress hit the highest level since April 2020, at the outset of the pandemic, as gas prices continued to rise following Russia’s invasion of Ukraine and the inflation rate hit a new 40-year-high 8.5%.

U.S. 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 and personal finances, along with support for government economic policies.

In May, the six-month outlook for the U.S. economy tumbled 6.5 points to 33.2, the lowest level since August 2011. That was back when the country was still climbing out of the financial crisis, and a battle over fiscal policy between the House GOP and President Obama nearly led to a default on U.S. debt.

The gauge of support for federal economic policies sank 4.4 points to 40.1, the lowest since December 2015. That gauge got as high as 56.4 last June, after more rounds of stimulus checks and amid a big push for more expansive policies from President Biden. Yet now stimulus has lapsed and the Federal Reserve is hiking interest rates to try and rein in the inflation that stimulus contributed to, along with pandemic-related supply constraints. 

The personal finances subindex slipped 1.8 points to 50.4. Views of personal finances had reached a bullish 59.7 last July.


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High Inflation Rate Shrinks Wages

The glum near-term outlook seems at odds with the April jobs report, delivered on May 6, which showed the U.S. economy added 428,000 jobs for the month as the unemployment rate held at 3.6%. Meanwhile, the average hourly wage rose a strong 5.5% from a year ago.

The problem, however, is that the rise in consumer prices is eating away all those wage gains, and then some, for most Americans. The consumer price index rose 8.5% from a year ago in March, the biggest increase in 40 years.

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The IBD/TIPP Poll finds that just 18% of adults say their wages have kept pace with inflation, while 51% say they haven’t kept pace. Meanwhile, 89% of Americans are concerned about the path of inflation over the next 12 months.

The IBD/TIPP Financial-Related Stress Index rose 1.4 points to 69.3% in May. That’s just below April 2020’s 69.8 record in polling back to December 2007. Readings above 50 mean financial stress is rising.

Despite labor market tightness, the IBD/TIPP Poll finds that 37% of households have at least one member who is out of work and looking for employment, down 4 points from April. Now 30% are concerned about job loss in the household, down 2 points. Factoring in the overlap, the share of job-sensitive households is currently 48%, down 4 points from last month.

Investors Grow More Bearish On U.S. Economy

Investors’ economic views deflated in May amid rising inflation and interest rates, but a falling stock market.

The U.S. Economic Optimism gauge fell 4.6 points to 47.4 among self-described investors, backsliding into pessimistic territory. IBD/TIPP counts as investors those respondents who say they have at least $10,000 in household-owned mutual funds or equities.

The S&P 500 closed at its lowest level in more than a year on Monday and is now down 16.3% this year. The S&P 500 and Nasdaq composite have each logged their first five-week declines since mid-2008. And the Nasdaq’s three-day, 1,341-point loss through Monday was the largest on record, according to Dow Jones Market Data.

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Make sure to read IBD’s daily afternoon The Big Picture column to get the latest read on the prevailing market trend and what it means for your trading decisions.

Investors remain far more upbeat than noninvestors. Among noninvestors, the IBD/TIPP index sank to 3.7 to 38, deeply pessimistic.

The May IBD/TIPP Poll reflects online surveys of 1,320 adults from May 4-6. The results come with a credibility interval of +/- 2.8 points.

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


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