Americans' views of the near-term U.S. economic outlook have dived into solidly pessimistic territory, hitting a three-year low in the September IBD/TIPP Poll. The escalating China trade war looks like a prime cause. The Dow Jones and broader stock market have been choppy in the past several weeks, on fears that the trade war will pressure an already-sluggish global economy.
President Trump blew up a cease-fire on Aug. 1, following through on Sept. 1 with 15% tariffs on about $110 billion in Chinese imports, including the Apple (AAPL) Watch.
The gauge of the six-month economic outlook slumped 7 points from the neutral 50 level at the start of August to 43.0. The September reading is the lowest since September 2016.
The broader IBD/TIPP Economic Optimism Index slid 4.3 points to a 7-month low, but remained slightly optimistic at 50.8.
Economic Optimism Index Components
The IBD/TIPP Economic Optimism Index is a composite of three major subindexes. They track views of near-term economic prospects, the outlook for personal finances, and views of how well government economic policies are working.
The personal finances subindex remained solidly optimistic at 59.2. But the 3.4-point drop left it below 60 for the first time since December 2017, the month Trump signed tax cuts into law.
The federal policies subindex slipped 2.3 points to 50.3, holding just above neutral. The 55.6 reading in May — just before Trump blew up the first China trade war cease-fire — was the highest since April 2003.
Trump's Handling Of China Trade War Loses Support
The IBD/TIPP Poll results indicate that Americans have soured on Trump's China trade war. Trump's net approval rating on his handling of China trade relations went from neutral in July to -4 points in August (40% approval; 44% disapproval) to -10 points in September (39%-49%).
In the September IBD/TIPP Poll, just 14% of respondents backed an escalation of Trump tariffs in the China trade war. Another 36% said Trump should remove all tariffs, even if there's no China trade deal in coming months, while 39% favored keeping existing tariffs in place.
Yet Trump just pulled the trigger on more China tariffs effective Sept. 1. Still more Trump tariffs are scheduled for coming months. On Oct. 1, Trump is set to hike tariffs on $300 billion worth of Chinese imports to 30% from 25%. In mid-December, Trump is due to slap 15% tariffs on some holiday-related items, including the Apple iPhone, laptops and toys.
Partisan views are a running undercurrent in surveys of confidence in the U.S. economy. The six-month economic outlook crashed 9.7 points to 19.7 among Democrats, while falling 5.3 points to a strongly optimistic 71.5 among Republicans. Among independents, the outlook gauge fell 4.2 points to 41.0, the lowest in three years.
Investors Turn Gloomy
Economic optimism among investors tumbled 6.4 points to 51.1, the lowest in three years. The economic outlook gauge for investors fell 8.2 points to 43.3, also a three-year low. Investors disapprove of Trump's handling of the China trade war, 34%-48%.
The Dow Jones Industrial Average sold off on Trump's Aug. 1 plan to impose new tariffs and has been choppy for several weeks. An inverted Treasury yield curve flashed recession signals last month. On Tuesday, the ISM manufacturing index unexpectedly fell below 50, signaling contraction for the first time in three years. The August employment report is due Friday, but jobs tend to be a lagging economic indicator.
The September IBD/TIPP Poll reflected 903 responses collected from Aug. 22-30 and has a margin of error of +/- 3.3%.
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