Economic Confidence Is At Its Highest Level Since The Pandemic's Outbreak

Economic Confidence Is At Its Highest Level Since The Pandemic's Outbreak

The IBD/TIPP Economic Optimism Index, a leading measure of consumer confidence, rose for the fourth month in a row. The April reading of the index is the highest since the Pandemic's outbreak in March 2020.

Raghavan Mayur
Raghavan Mayur

The IBD/TIPP Economic Optimism Index, a leading measure of consumer confidence, rose for the fourth month in a row. The index reading of 56.4 in April is the highest since the Pandemic's outbreak in March 2020.

Following a reading of 55.4 in March, the index increased by 1.8 percent to 56.4, bringing it closer to the pre-COVID reading of 59.8 in February 2020.

Consumer spending drives two-thirds of the economy.  Optimistic consumers spend money on automobiles, home improvements, new homes, and other large-ticket items.

The TIPP Economic Optimism Index is the most well-known of our TIPP indexes. Investor's Business Daily publishes the IBD/TIPP economic optimism index every month.

Multiple factors are propelling the index.

  • Americans who qualify receive $1,400 as a result of the economic stimulus bill.
  • As more Americans get vaccinated, we are getting closer to herd immunity.
  • Consumer perception has shifted significantly, and Americans are generally optimistic about putting the Pandemic behind them.

TIPP Economic Optimism Index

This flagship Index has three equally weighted components.  For the index and its components, a reading above 50.0 signals optimism, and below 50.0 indicates pessimism.

In April, two of the three components increased.

  • The Six-Month Economic Outlook, a measure of how consumers feel about the economy's prospects in the next six months, increased by 5.1%, rising from 53.2 in March to 55.9 in April.
  • The Personal Financial Outlook, a measure of how Americans feel about their finances in the next six months, fell by 1.2%, moving from 58.0 March to 57.3 this month.
  • Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, rose 2% from 54.9 in March to 56.0 in April.

Party Shift

Typically when Democrats come into power, Republicans turn bearish and vice versa. Democrats' confidence has steadily climbed for seven months in a row from 32.8 in September to 73.8 in April.

Republicans' confidence has steadily eroded since October, dropping from 74.0 in October to 36.9 in April.

In general, Independents tend to stay close to the overall line with fewer sharp reversals than those affiliated with political parties.

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. The same holds if the 6-month average exceeds the 12-month average.

In the chart below, in all cases, the three-month moving average is greater than the six-month moving average.  And the six-month is greater than the twelve-month.

Demographic Analysis

This month, 17 of the 21 demographic groups we track — such as age, income, education, and race — are above 50.0, indicating a positive reading on the Economic Optimism Index.

We've seen a steady improvement over the last few months, with 16 groups in positive territory in March, 11 in February, and eight in January.

Fourteen groups rose this month on the index, compared to 19 in March.

Recession

There are other signs of improvement in the data.  In April, fewer Americans said that we are in a recession.  And more believe that the economy is improving.

As the economy reopens, the employment situation is likely to improve. We expect confidence to persist in the coming months and the economic outlook is promising as we move toward herd immunity.

TIPP surveyed 1,436 adults from March 31-April 3 using an online survey of adults 18 or older nationwide.

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