Consumer sentiment edged higher in May, a month after posting its largest decline in more than six years, as a growing number of states move to reopen their economies amid an apparent flattening of the coronavirus curve, according to the latest reading of the Investor’s Business Daily/TIPP Economic Optimism Index, a leading indicator for the health of consumer spending and the economy. However, the index remains in pessimistic territory for the second month in a row, as Americans continue to grapple with the economic pain from the outbreak, which has prompted massive job losses and triggered the biggest quarterly decline in the nation’s GDP since the Great Recession.
The IBD/TIPP Economic Optimism Index increased by 1.9 points, or 4 percent, this month, to a reading of 49.7, following an 11.3 percent plunge in April, which marked the largest monthly drop since October 2013. The index is also coming off of its lowest point since November 2016, reflecting a hope among Americans that the worst of the coronavirus crisis might be over and the economy will soon bounce back. Still, the measure lingers below a reading of 50, indicating continued pessimism about economic conditions. Further highlighting the toll that the coronavirus outbreak has taken on consumer sentiment, close to half (49 percent) of Americans believe that the U.S. economy is currently in a recession, according to our survey.
This month’s rise in consumer confidence comes as governors in more than half of U.S. states begin easing lockdown measures to allow more businesses to reopen. States have been under increased pressure to resurrect their economies amid widespread unemployment. More than 30 million Americans have filed for jobless benefits over the past six weeks, erasing all the job gains since the Great Recession. Also, the U.S. economy shrank by 4.8 percent during the first quarter, marking the largest decline since 2008.
Americans are getting some financial relief in the form of stimulus checks from the federal government. As part of its efforts to blunt the economic impact from the coronavirus outbreak, the government is sending one-time payments of up to $1,200 to individual taxpayers with less than $75,000 in income. The IRS estimates that 150 million individuals are eligible for a stimulus check.
The brightening views on the economy are widespread. In May, 17 of the 21 demographic groups that Investor’s Business Daily and TechnoMetrica monitor each month posted gains in the index, compared with just four in April. However, a majority (12) of segments remain in pessimistic territory, while nine reported optimistic readings. An index score of 50 is neutral, above 50 is positive, and below 50 is negative.
Optimism grew across all U.S. regions. The West exhibited the largest gain in the index, climbing from 45.7 in April to 51.3 this month, an increase of 12.3 percent. The remaining regions showed more modest month-over-month increases. The Northeast improved from 45.1 to 46.8 (3.8 percent), the Midwest rose from 45.5 to 46.9 (3.1 percent), and the South edged higher from 51.7 to 51.8 (0.2 percent).
Consumer confidence remains divided along partisan lines, with Republicans continuing to report the highest levels of optimism. However, sentiment among Democrats brightened significantly this month, climbing 8.4 percent, to a reading of 41.1, the highest since May 2019. Independents also displayed a more optimistic view of the economy, with the segment’s index reading surging from 39.5 in April to 46.1 in May.
Besides the headline indicator, IBD and TechnoMetrica also monitor three key subindexes measuring different aspects of consumer sentiment. This month, two components posted gains (the Six-Month Economic Outlook and Personal Financial Outlook subindexes), while one (the Confidence in Federal Economic Policies subindex) declined.
The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, climbed 4.3 points, or 11.3 percent, in May, to a reading of 42.3, after falling to its lowest level in more than three years last month. Nearly all (20) demographic groups displayed a brighter outlook for the economy in the short term, up from just two in April. Despite the improvement, the subindex persists in pessimistic territory for the third consecutive month, reflecting lingering uncertainty over how long and devastating the economic crisis will ultimately prove to be.
The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, rose by 2.7 points, or 5.4 percent, this month, to a reading of 52.9, rebounding from a more than six-year low set in April. This marks the 79th straight month in which the component measure has posted a reading in optimistic territory. The government stimulus checks have likely blunted some of the coronavirus-induced financial pain for Americans. However, a majority (57 percent) of Americans continue to express concern over keeping up with their living expenses amid the crisis, our survey shows.
Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, declined by 1.3 points, or 2.4 percent, in May, to a score of 53.8, following a gain of 4.8 percent last month. Despite the slight deterioration, the subindex remains in optimistic territory for the 15th consecutive month, suggesting that Americans are largely satisfied with the government’s efforts to contain the economic fallout from the coronavirus outbreak.
The IBD/TIPP Economic Optimism Index is compiled from an online survey of 1,225 U.S. adults fielded from April 26 to April 29.