Economic Confidence Brightens In July - RealClearMarkets/TIPP

The RealClearMarkets/TIPP Economic Optimism Index, a leading gauge of consumer sentiment, rebounded sharply by 9.1% in July to 44.2. Since September 2021, the Index has remained in negative territory (35 consecutive months). Still, July’s reading of 44.2 is 10.2% lower than the historical average of 49.2.

Optimism among investors gained 15.3% from 46.5 in June to 53.6 in July, while it increased by 4.5% among non-investors, from 37.7 in June to 39.4 in July.

The RCM/TIPP Economic Optimism Index is the first monthly measure of consumer confidence. It 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 1,389 adults from June 26 to June 28 for the July index. The online survey utilized TIPP's network of panels to obtain the sample. A more detailed methodology is available here.

RCM/TIPP Economic Optimism Index

The RCM/TIPP Economic Optimism Index has three key components. In July, all three components showed improvement. 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 Six-Month Economic Outlook, which measures how consumers perceive the economy's prospects in the next six months, improved from 36.8 in June to 40.7 in July, marking a 10.6% gain. 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 by 8.4% from its previous reading of 47.9 in June to 51.9 this month. In January, the component had crossed above the neutral reading of 50.0. It remained in the positive territory (above 50.0) for five consecutive months, only to drop below 50.0 in June and bounce back in July.
• Confidence in Federal Economic Policies, a proprietary RCM/TIPP measure of views on the effectiveness of government economic policies, improved from 36.7 in June to 40.0 this month, reflecting a 9.0% gain.

Party Dynamics

Democrats showed the highest confidence in June, at 59.6, increasing from 57.9 in June, a 2.9% gain.

Meanwhile, Republicans' confidence increased 4.5 points to 32.9 this month, a gain of 15.8%. Since the last presidential election, it has stayed in the pessimistic zone for 44 consecutive months.

Independents’ confidence has been in pessimistic territory for 52 months since April 2020, the month after the onset of the pandemic. In July, independents gained 5.1 points, or 15.1%, and posted 38.8 on the Index.

Investor Confidence

Respondents are considered "investors" if they currently have at least $10,000 invested in the stock market, either personally or jointly with a spouse, either directly or through a retirement plan. 33% of respondents met this criterion, and 63% were classified as non-investors. We could not ascertain the status of 4% of respondents.

Optimism among investors rose by 7.1 points or 15.3%, from 46.5 in June to 53.6 in July, while it increased by 1.7 points or 4.5% among non-investors, from 37.7 in June to 39.4 in July.

The economic optimism gap between investors and non-investors widened to 14.2 in July from 8.8 in June and 6.2 in May.

Momentum

Comparing a measure's short-term average to its long-term average is one way to detect its underlying momentum. For example, if the 3-month average is higher than the 6-month average, the indicator is bullish. If the 6-month average exceeds the 12-month average, the same holds true.

In July, the Economic Optimism Index and its three components are higher than their respective three-month moving averages. The data points to an improvement.

Demographic Analysis

The number of groups in the positive zone indicates the breadth of optimism in American society. This month, four of the 21 demographic groups we track, age 25-44 (50.3), investors (53.6), Blacks/Hispanics (54.9), and Democrats (59.6) are above 50.0, indicating optimism on the Economic Optimism Index.

In 2024, the number of groups in the positive zone has oscillated between two and five. In July, only four groups are in the positive zone.

All 21 groups improved on the Index, compared to five in June, five in May, and six in April.

Economic optimism levels for 18 out of 21 demographic groups were lower in June 2024 than the historical average of the past 282 months.

Inflation

The survey showed that 84% are worried about inflation. One-half (53%) are very concerned, and another 31% are somewhat concerned.

Americans continue to suffer because real wages have not increased, despite the CPI rate falling from a 40-year high of 9.1% in June 2022 to 3.0% in June 2024.

The Federal Reserve believes that long-run inflation of 2%, measured by the annual change in the price index for personal consumption expenditures, is most consistent with its maximum employment and price stability mandate.

You can read more on our analysis of inflation here.

Recession

Four in ten (46%) believe we are in a recession, while 30% think we are not. Another 24% are not sure.

Further, nearly two-thirds (61%) think the U.S. economy is not improving, while 28% believe it is improving.

Fiscal Profligacy

Government spending has spiraled out of control, resulting in a national debt exceeding $34 trillion, which increases by $1 trillion every 100 days.

Most Americans are concerned about the sustainability of government spending. The high interest rates are also hurting Americans and sapping their confidence.

We anticipate a stagflationary economy in 2024. The risks on the downside outweigh those on the upside.