Financial Stress Roils Americans As Seeds Of Optimism Sprout

Financial Stress Roils Americans As Seeds Of Optimism Sprout

Raghavan Mayur
Raghavan Mayur

Financially, Americans are going through a rough period. It is natural to be vulnerable to financial pressures after the past twelve months, i.e., since the beginning of the pandemic and the resulting significant job losses, on top of an emotional and human toll exceeding half a million, all while being cooped up in extended lockdowns.

We are clearly at a crossroads. The coming four-month period will be the twilight that precedes the sunrise.

High Financial Stress Across-The-Board

The TIPP Financial Stress Index is a one-of-a-kind metric for assessing financial strain.  We started using it to track financial stress in December 2007.  We compute the index from responses to the questions: thinking of your personal finances, compared to the past three months, do you feel more stressed these days, less stressed these days, or feel the same level of stress? The index ranges from 0 to 100; the higher the number more the stress, a reading of 50.0 is the neutral point.

To smoothen the month-to-month volatility, we took the three-month simple moving average (3-SMA) to represent its March reading.  The March survey was conducted before President Biden signed the $1.9 trillion stimulus bill.

Overall the stress index in March (3-SMA) at 62.3 is 6.3% higher than its historical average of 58.6.

All the 36 demographic groups, TIPP tracks scored above 50, indicating broad-based stress. Only one of the 36 groups was below its historical average.

Here are the ten demographic groups with double-digit increases compared to their historical benchmark.

  • Conservatives (19.8%)
  • Age 25-44 (13.9%)
  • Income $75K+ (12.5%)
  • Age 18-24 (12.0%)
  • White men (11.6%)
  • Urban (11.4%)
  • College Degree+ (11.0%)
  • Investors (10.7%)
  • Hispanic (10.4%)
  • Male (10.2%)

Here are the six groups with under 2% increases.

  • Income $30K-$50K (1.9%)
  • Northeast (1.6%)
  • Some College (1.6%)
  • Age 45-64 (1.6%)
  • Age 65+ (0.0%)
  • Under $30K (-0.9%)

What is Driving The Stress?

It is the job situation.  In our survey, 41% mentioned that at least one person of their household is looking for a full-time job:

  • One person (19%)
  • Two persons (12%)
  • Three+ (9%)

The official unemployment rate of 6.2% obscures the above intensity.

Further, over a third (38%) of households are concerned that a member might be laid off in the coming 12 months. 22% are very concerned, and another 16% are somewhat concerned

With the stimulus bill kicking in, the likelihood of further layoffs may lessen.

We define a household as job sensitive if at least one member is looking for a full-time job or the household is concerned a member may lose the job in the next 12 months.

According to our latest survey, 54% of households are job sensitive, compared to 22% in Feb 2020 (before the pandemic hit).

Mixed Perceptions

When asked if we are in a recession, 45% of survey respondents think we are in one, and 22% believe we are not in one.  Again, a sign of the twilight, 31% are not sure.

When asked if the U.S. economy is improving, 36% believe it is; 43% think not.  19% are not sure.

But, not everything is negative.

We can recognize that we are in the twilight that will precede a sunrise and not a sunset because the data show embryonic signs of hope! Despite high stress, a grim job picture, and mixed feelings, we appear to be capable of imagining a better future. And that could be one of the essentials to making it come true.

Economic Optimism

Our economic optimism index captures the seed of optimism.

Why is optimism essential?  We don't have an economy if people don't open up their purses.  Consumer spending drives two-thirds of the economy.

General Principle

Comparing a measure's short-term average to its long-term average is one way to detect its underlying oomph. 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.

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.  This flagship Index is made up of three equally weighted components. Here's where you can learn more about the index. For the index and its components, a reading above 50.0 signals optimism, and below 50.0 indicates pessimism.

Please see the chart below to see the optimism.  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.

Conclusion

The much-anticipated herd immunity will emerge as more Americans are vaccinated.

It will facilitate people's movement for trade and commerce, as well as a return to normalcy.

Meanwhile, the stimulus will work its way through the system, boosting consumer spending.

So, here we are in the twilight that we now know will precede a beautiful sunrise! The future looks promising. More job opportunities will be available.  Anxiety about money will lessen.  The new economy will take three to four months to emerge.  It's not going to be a June swoon. Hey, who knows, we might be out of the recession. Let us rejoice in the new economy and put the pandemic behind us.

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