Consumer confidence posted its largest decline in more than six years this month, as escalating concerns over the coronavirus outbreak, a steep sell-off in the U.S. stock market, and uncertainties with regards to the 2020 presidential election cloud Americans’ outlook for economic conditions in the near term, according to the March reading of the Investor’s Business Daily/TIPP Economic Optimism Index, a leading indicator for the health of consumer spending and the economy. Despite the sudden dip, the index remained in optimistic territory for a record 42nd consecutive month, signaling that consumer spending will remain strong in the near term, supported by a booming labor market.

The IBD/TIPP Economic Optimism Index retreated from a 16-year high reached last month, declining 5.9 points, or 9.9 percent, in March to a reading of 53.9, the largest drop since October 2013, when the federal government entered a shutdown that lasted 16 days and cost the U.S. economy around $24 billion. However, Americans’ sentiment towards the economy remains bright, as the labor market continues to add jobs at a robust pace. In fact, a majority (53 percent) of Americans feel that the economy is improving, according to the latest IBD/TIPP Poll.

This month’s pullback in consumer confidence levels comes as Americans grow anxious over the potential economic fallout from the coronavirus epidemic. More than three-quarters (77 percent) of Americans say it is likely that the coronavirus will negatively impact the U.S. economy, our survey finds.

The deceleration in optimism was felt across all 21 demographic groups that Investor’s Business Daily and TechnoMetrica monitor on a monthly basis. At the same time, a majority (15) of segments still posted index readings in optimistic territory this month.An index score of 50 is neutral, above 50 is positive, and below 50 is negative.

All U.S. regions posted declines in the index, with the Midwest (minus 10.5 points) and Northeast (minus 9.1 points) reporting the steepest drops. The South continues to hold the most optimistic view of the economy, with an index reading of 59.4. Upbeat consumer confidence is also reported in the West (52.4) and Midwest (51.1) regions. The Northeast is the only region in pessimistic territory, at 47.5.Besides the flagship indicator, IBD and TechnoMetrica also monitor three key subindexes measuring different aspects of consumer sentiment. All three components posted declines this month.

The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, plunged 9.2 points, or 16.1 percent, in March to a reading of 47.8, the largest monthly decline since October 2013. The drop puts the subindex in pessimistic territory for the first time since November 2019, suggesting that coronavirus concerns, coupledwith deepening uncertainty surrounding the 2020 election, are taking a toll on Americans’ near-term outlook for the economy.

The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, declined for the second straight month, falling 3.2 points, or 5 percent, to a score of 61.2, the lowest since November 2019. Still, consumers remain highly upbeat about their finances, as the component measure extended its run in optimistic territory to 77 consecutive
months. Also, all demographic groups covered in the study posted
readings above 50 this month.

Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, decreased by 5.3 points, or 9.2 percent, in March to 52.6, a month after reaching a near18-year high. This marks the largest drop in the component since April 2017, likely reflecting skepticism over the government’s response to the coronavirus outbreak. However, the subindex remains in optimistic territory for the 13th month in a row, as Americans continue to reap the benefits of the Federal
Reserve’s easing monetary policy.

The IBD/TIPP Economic Optimism Index is compiled from a survey of 901 adults nationwide contacted via mobile phones and landlines from Feb. 20-29 and carries a 3.3-point margin of error.

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