Economic Optimism Hits 10-Year High in the U.S.
The IBD/TIPP Economic Optimism Index rose 3.4 points to 54.8, the highest since November 2006, remaining above the neutral 50 level for the third straight month. While confidence in the economy had been on the upswing before the election, the surprise victory of Donald Trump, part of a clean sweep for Republicans, had a huge effect on Americans' economic expectations. The effect was far more positive than negative, but economic sentiment tends to be partisan, and that's never been more clear than in this month's poll.
Optimism about the six-month economic outlook rocketed to 86.6 among Republicans from 50.9 just before the election, hitting the highest level since the IBD/TIPP Economic Optimism Indexwas launched in 2001. Independents' view of the six-month outlook jumped 12.7 points to 58.5, highest since January 2004. But sentiment among Democrats plunged 32.1 points to 28.2, lowest since October 2008, just before Barack Obama was elected.
Economic data have been trending positive, with the jobless rate sinking to 4.6% in November as the economy added 178,000 jobs. But no economic news has gotten as much attention as Trump's intervention last week that caused Carrier, a unit of United Technologies (UTX), to cancel plans to move an Indiana factory to Mexico.
On Tuesday, Trump tweeted that he wants a Boeing (BA) order for new Air Force One planes canceled. Boeing shares fell 1.5% intraday, but closed up 8 cents at 152.24 on the stock market today.
Before those events, Ford Motor (F) said it was calling off plans to shift production of the Lincoln MKC to Mexico from Louisville, Ky.
Optimism is running high over Donald Trump's agenda of lower taxes and more infrastructure spending, yet there are three big factors that could limit what he can accomplish: 1) High deficits and strict budget rules; 2) A tight job market; and 3) A possibility of rising trade tensions that could backfire on U.S. employers.
The Economic Optimism Index is a composite of three major subindexes that track views of near-term economic prospects, the outlook for personal finances over the coming six months and views of how well government economic policies are working.
All three major subindexes rose this month.
The six-month optimism gauge climbed 4.1 points to 56.3, a big recovery after sinking as low as 36.7 in July.
The personal financial outlook index rose a modest 0.9 point to 59.8, but remained the highest of the three subindexes.
The measure of confidence in federal economic policies got the biggest lift from the election, jumping 5.2 points to 48.3, highest since August 2007.
Overall, economic optimism jumped 3.6 points to 55.6 among self-described investors, the highest since January 2007. Trump's agenda of cutting personal and corporate taxes, along with a burst of infrastructure spending, have helped fuel a stock market rally since Nov. 9. That rally, which has aided infrastructure-related firms over big-cap techs such as Apple (AAPL) and Facebook (FB), is both a reflection of and fuel for positive investor sentiment. Among non-investors, optimism rose 3.5 points to 54.1.
Beyond the divergence in optimism along political lines, there were also clear differences along racial and geographic lines.
Optimism fell 7.2 points to 51.2 among urban dwellers, while jumping 5.1 points to 54.9 among suburbanites and surging 11.7 points to 58.4 among rural dwellers.
Optimism jumped 7.5 points to 56.3 among whites, while falling 8.8 points to 50.1 among blacks and Hispanics.
The IBD/TIPP Poll of 902 Americans was conducted from Nov. 28-Dec. 4 via live interviews of people with landlines and cellphones. It has a margin of error of +/- 3.3 percentage points.