The RealClearMarkets/TIPP Economic Optimism Index, a leading measure of consumer confidence, fell 10.1% in December to 40.0. The index has remained in negative territory for 28 consecutive months now.
RealClearMarkets (RCM) is the new sponsor of the TIPP Economic Optimism Index.
The RCM/TIPP Economic Optimism Index is the first monthly measure of consumer confidence. It accurately predicts monthly changes in sentiment, as reflected in other well-known surveys conducted by The Conference Board and the University of Michigan.
Consumer spending drives two-thirds of the economy. Optimistic consumers spend money on automobiles, home improvements, new homes, and other large-ticket items.
RCM/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 a reading below 50.0 indicates pessimism.
The RCM/TIPP Economic Optimism Index has three key components. In December, all three components declined.
- The Six-Month Economic Outlook, which measures how consumers perceive the economy's prospects in the next six months, dropped from 39.1 in November to 34.3 in December, marking a 12.3% decrease. In October, this component had 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, declined by 6.6% from its previous reading of 53.0 to 49.5 this month. By undercutting the neutral reading of 50.0, this component has now returned to negative territory.
- Confidence in Federal Economic Policies, a proprietary RCM/TIPP measure of views on the effectiveness of government economic policies, fell from 41.5 in November to 36.1, reflecting a 13.0% change.
Party Dynamics
Democrats posted the highest confidence level in December, at 56.1, despite declining sharply by 11.2 points.
Meanwhile, Republicans' confidence declined by 3.0 points to 27.4 this month. It has stayed in the pessimistic zone for 37 consecutive months since December 2020, after the 2020 presidential election.
Independents’ confidence has been in pessimistic territory for 45 months since April 2020, the month after the onset of the pandemic. Independents, the only demographic to buck the trend, gained 1.8 points and posted 35.7 in December.
Investor Confidence
RCM/TIPP considers respondents to be "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. We classified 29% of respondents who met this criterion as investors and 67% as non-investors. We could not ascertain the status of 4% of respondents.
Investors declined sharply by 12.3 points in December to 45.8, entering the pessimistic zone. Meanwhile, non-investors increased slightly by 1.3 points from 36.2 to 37.5, which implies that the overall decline can be attributed to the 12.3-point drop in investor confidence.
The economic optimism gap between investors and non-investors is 8.3 in December, narrowing from 21.9 in November.
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 December, two of the three components are lower than their three-month moving averages, while the economic outlook component is slightly higher than its three-month average.
Furthermore, the three-month moving averages for all the components and the Economic Optimism Index are lower than the six-month moving average.
As a result, the data presents a bias toward negative momentum.
Demographic Analysis
The number of groups in the positive zone indicates the breadth of optimism in American society. This month, two of the 21 demographic groups we track—such as age, income, education, and race—are above 50.0, indicating optimism on the Economic Optimism Index. Starting with three groups in January 2023, we saw steady improvement, peaking at nine groups in April and then a decline to return to one group in August. Since August, it has moved in the range of one to six. Eight of the 21 groups posted increased confidence in December compared to 20 in November.
Inflation
Inflation acts as a form of indirect tax on American households.
According to our survey, 85% are worried about inflation. Over half (51%) are very concerned, and another 34% are somewhat concerned.
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.
We will cover inflation in greater depth after the release of the CPI next week.
Recession
One-half of Americans believe we are in a recession, and another 23% are unsure. 27% believe we are not in a recession.
Nearly two-thirds (64%) think the U.S. economy is not improving, while 23% believe it is improving.
Fiscal Profligacy
The national debt is poised to cross $34 trillion before the end of 2023, adding one trillion dollars in under 100 days. Most Americans are concerned about the sustainability of this trajectory. The high interest rates are also hurting Americans and sapping their confidence.
The overall economic outlook and confidence are gloomy. We anticipate a stagflationary economy in 2024. The risks on the downside outweigh those on the upside. Watch the real estate market, the stock market, the job market, and see if Washington can pass spending bills.
Using an online survey, TIPP polled 1,464 adults nationwide from November 29 to December 1.
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