Economic Optimism Hits New 10-Year High As Trump Rally Continues
(Investor’s Business Daily/Carson) The IBD/TIPP Economic Optimism Index rose in January after surging at the end of 2016, as enthusiasm following Donald Trump’s election continues to build into the new year.
The Economic Optimism Index climbed 0.8 point in January to 55.6, just below the November 2006 peak of 55.7. That followed December’s 3.4-point jump in the wake of the presidential election. That 8.2% gain over two months almost exactly matches the 8.3% rally in the Dow Jones industrial average since Election Day through Tuesday. Not only is the stock rally fattening investor portfolios and 401(k) accounts, it’s providing tangible evidence that ordinary Americans should feel more upbeat.
It’s not unusual for confidence to improve after an election, especially when the party in power changes hands. After a grueling campaign season, voters are relieved to move on and hopeful that Trump’s agenda of tax cuts and deregulation can boost economic growth and their own finances. And while big businesses worry about Trump singling them out for criticism on Twitter, many Americans see a decisive leader working for them.
“Americans are hopeful that President-elect Donald Trump will deliver on his promises to boost U.S. employment and grow the economy,” said Raghavan Mayur, president of TechnoMetrica, IBD’s polling partner. “Since Mr. Trump’s victory, various companies, such as Ford (F), Alibaba(BABA), and Softbank (SFTBY), have committed to creating jobs here and investing in U.S. production. Further, the stock market has hit record highs, and is inching closer to 20,000. These encouraging signs are why many Americans see a bright future for the U.S. economy under Trump.”
The warm feelings aren’t universal, as Americans continue to see the economy via a partisan lens. Republicans and independents became slightly more optimistic after turning sharply upbeat last month after the election. But Democrats were slightly more pessimistic after their sentiment cratered in December.
The Economic Optimism Index has three main subindexes. They all are much higher since the presidential election.
- The Six-Month Economic Outlook, a measure of how consumers feel about the economy’s prospects in the next six months, dipped 0.3 point, or 0.5%, to 56. But that’s after soaring 4.1 points in December.
- The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months gained 2.5 points, or 4.2%, to 62.3. That’s the highest since October 2004.
- Confidence in Federal Economic Policies, a proprietary IBD/TIPP measure of views on how government economic policies are working, improved 0.2 point, or 0.4%, to 48.5, after spiking by 5.2 points in December. That’s the highest since a matching level set in August 2007. The recent moves in this gauge suggest that Americans are looking ahead to the incoming Trump administration and GOP Congress.
Meanwhile, the Financial Related Stress Index fell to 52.2 from 56 in December and 58.3 in October. That’s the lowest reading — meaning less financial stress — since the gauge began in December 2007, when the recession started.
Consumers aren’t alone in feeling more confident. The NFIB’s small business optimism index for December soared to its highest level since the end of 2004. A net 50% of small firms see the economy improving, vs. 12% in November and -7% in October. Homebuilders’ confidence has hit a decade high even with mortgage rates jumping in recent months.
As businesses become more willing to invest and expand, consumers may step up their spending, especially with wage gains picking up.
But not all retailers will be winners.
Amazon (AMZN) appears to have had a strong holiday season yet again. But Macy’s (M), Kohl’s(KSS) slashed profit forecasts as they were among several brick-and-mortar chains — but not all — warning of grim holiday sales as shoppers made purchases at Amazon and other online stores. It’s unclear what Macy’s and other department stores can do to stop the slide.
Meanwhile, General Motors (GM) on Tuesday gave a bullish 2017 earnings forecast after reporting a surprisingly strong 10% U.S. sales gain in December. Ford announced a special dividend Tuesday and sees “improved profitability” in 2018 after an investment-heavy 2017.
The IBD/TIPP Poll surveyed 904 adults from Jan. 3-9 via live interviews. It has an margin of error of +/- 3.3 points.