The RealClearMarkets/TIPP Economic Optimism Index, a leading gauge of consumer sentiment, plummeted 3.2% in May to 41.8. What’s more concerning is that the Index has remained in negative territory for a staggering 33 consecutive months since September 2021.
While optimism among non-investors showed a modest improvement of 9.6% from 36.6 in April to 40.1 in May, investor sentiment took a significant hit, declining by 15.7% from 54.9 in April to 46.3 in May.
The RCM/TIPP Economic Optimism Index is the first monthly measure of consumer confidence. It has established a strong track record of foreshadowing the confidence indicators issued later each month by the University of Michigan and The Conference Board. (From February 2001 to October 2023, TIPP released this Index monthly in collaboration with its former sponsor and media partner, Investor’s Business Daily.)
RCM/TIPP surveyed 1,435 adults from May 1 to May 3 for the May Index. The online survey utilized TIPP’s network of panels to obtain the sample. A more detailed methodology is available here.
RCM/TIPP Economic Optimism Index
The RCM/TIPP Economic Optimism Index has three key components. In May, two of these components declined, while one showed improvement. The index and its components range from 0 to 100. A reading above 50.0 signals optimism and a reading below 50.0 indicates pessimism. 50 is neutral.
- The Six-Month Economic Outlook, which measures how consumers perceive the economy’s prospects in the next six months, dropped sharply from 38.8 in April to 35.7 in May, marking an 8.0% decrease. In October 2023, this component posted 28.7, its lowest reading since the Index debuted in February 2001.
- The Personal Financial Outlook, a measure of how Americans feel about their own finances in the next six months, improved slightly – 1.4% from its previous reading of 50.6 in April to 51.3 this month. In January, the component crossed above the neutral reading of 50.0 and has since remained positive for five consecutive months.
- Confidence in Federal Economic Policies, a proprietary RCM/TIPP measure of views on the effectiveness of government economic policies, declined sharply from 40.3 in April to 38.5 this month, reflecting a 4.5% drop.
Party Dynamics
Democrats posted the highest confidence levels in May, at 57.5, despite a decline from 60.6 in April, a 5.1% drop.
Meanwhile, Republicans’ confidence improved 0.6 points to 30.5 this month, a gain of 2.0%. It has stayed in the pessimistic zone for 42 consecutive months since December 2020, after the last presidential election.
Independents’ confidence has been in pessimistic territory for 50 months since April 2020, the month after the onset of the pandemic. In May, independents dropped 1.7 points, or 4.5%, and posted 36.3 on the Index.
Investor Confidence
Respondents are considered “investors” if they currently have at least $10,000 invested in the stock market, either personally or jointly with a spouse, either directly or through a retirement plan. 27% of respondents met this criterion, and 67% were classified as non-investors. We could not ascertain the status of 6% of respondents.
Optimism among investors slid 8.6 points or 15.7%, from 54.9 in April to 46.3 in May, while it improved by 3.5 points or 9.6% among non-investors, from 36.6 in April to 40.1 in May.
The economic optimism gap between investors and non-investors narrowed to 6.2 in May from 18.3 in April and 10.6 in March.
Momentum
Comparing a measure’s short-term average to its long-term average is one way to detect its underlying momentum. For example, if the 3-month average is higher than the 6-month average, the indicator is bullish. If the 6-month average exceeds the 12-month average, the same holds true.
In May, the Economic Optimism Index and its three components are lower than their respective three-month moving averages.
Also, in most cases, the three-month moving averages are equal to or close to their six-month moving averages. The data points to a potential slowdown.
Demographic Analysis
The number of groups in the positive zone indicates the breadth of optimism in American society. This month, two of the 21 demographic groups we track— age, income, education, race, etc.—are above 50.0, indicating optimism on the Economic Optimism Index. Starting with three groups in January 2023, we saw steady improvement, peaking at nine groups in April and then declining to one group in August. Since August, it has been in the range of one to six. In May, only two groups are in the positive zone.
Five of the 21 groups improved on the index, compared to six in April, 10 in March, and 10 in February.
Inflation
The survey showed that 87% are worried about inflation. One-half (53%) are very concerned, and another 34% are somewhat concerned.
Americans continue to suffer because real wages have not increased, despite the CPI rate falling from a 40-year high of 9.1% in June 2022 to 3.5% in March 2024.
The Federal Reserve believes that long-run inflation of 2%, measured by the annual change in the price index for personal consumption expenditures, is most consistent with its maximum employment and price stability mandate.
We will cover inflation in greater detail upon the release of the CPI data next week.
Recession
Four in ten (45%) Americans believe we are in a recession, while 26% are unsure. 29% think we are not in a recession.
Further, nearly two-thirds (62%) think the U.S. economy is not improving, while 25% believe it is improving.
Fiscal Profligacy
Government spending has spiraled out of control, resulting in a national debt exceeding $34 trillion, which increases by $1 trillion every 100 days.
Most Americans are concerned about the sustainability of this trajectory. The high interest rates are also hurting Americans and sapping their confidence.
We anticipate a stagflationary economy in 2024. The risks on the downside outweigh those on the upside.
TIPP Takes
Geopolitics, Geoeconomics, And More
1. U.S. Reveals It Paused Shipment Of Bombs For Israel Over Rafah Concerns – BBC
The U.S. last week paused a bomb shipment for Israel over concerns it was going ahead with a major ground operation in Rafah, southern Gaza, a senior administration official says.
The shipment consisted of 1,800 2,000lb bombs and 1,700 500lb bombs, the official told CBS News, the BBC’s media partner in the U.S. Israel has not “fully addressed” U.S. concerns over the humanitarian needs of civilians in Rafah, the official says.
2. Israeli Military Takes Control Of Vital Rafah Crossing From Gaza Into Egypt – Reuters
The Israeli military took control of the vital Rafah border crossing between Gaza and Egypt on Tuesday, pushing into the southern Gazan town after a night of airstrikes and as prospects for a ceasefire deal hung in the balance.
Israel said the terms did not meet its demands and launched a military operation in Rafah.
The United States has been pressing Israel not to launch a military campaign in Rafah until it has drawn up a humanitarian plan for the Palestinians sheltering there, which Washington says it has yet to see.
3. Hamas Official Warns Cairo Talks ‘Last Chance’ For Israel To Free Hostages – AFP
“This may be the last chance to recover the Israeli captives alive,” said A senior Hamas official, requesting anonymity to discuss the negotiations.
The official said the Hamas negotiators had canceled plans to travel from Doha to Cairo for negotiations after Israel’s incursion across the Rafah border crossing in southern Gaza but that they would leave “shortly” for Egypt.
The official warned that Israeli Prime Minister Benjamin Netanyahu’s “decision to invade Rafah” indicated that “he and his army have decided to let the prisoners (hostages) die.”
4. Putin Inaugurated In Ceremony Marked By Western Boycott – UPI
The 71-year-old Putin took the presidential oath of office for a fifth time in an ornate ceremony in Moscow’s Grand Kremlin Palace, attended by senior Russian politicians and other dignitaries.
Noticeably absent were representatives from the United States, Britain, Canada, and most European Union members.
Putin – who has ruled as either president or prime minister since 2000 –is set to surpass Soviet dictator Josef Stalin’s nearly 30-year reign by the end of his new term to become the longest-serving Russian leader in more than two centuries.
5. Ukraine: Kyiv Says It Foiled Plot To Kill Zelenskyy – D.W.
Ukraine’s security service, SBU, said that it detained two Ukrainian security officials for alleged involvement in a plot to kill Ukrainian President Volodymyr Zelenskyy and other government officials.
A statement said two colonels in the State Guard of Ukraine, which protects top officials, were arrested on suspicion of involvement in the plan.
The SBU said the Russian network was working within the state guard service. The announcement comes a few days after Zelenskyy sacked Ilya Vityuk, the head of the SBU’s cybersecurity department, amid allegations of corruption.
6. Belarus Says It’s Checking Preparedness Of Its Tactical Nuclear Forces – RFE/RL
The Belarusian Defense Ministry said that it had started to check the preparedness of its tactical nuclear forces a day after Russia announced a similar move.
Belarusian Defense Minister Viktar Khrenin said the checks for preparedness of the carriers of the tactical nuclear weapons started at the order of authoritarian ruler Alyaksandr Lukashenka.
Lukashenka supported Russia’s ongoing invasion of Ukraine and allowed Russian armed forces to use Belarusian territory, military infrastructure, and airspace during the invasion.
7. U.S. Sanctions Indicts Russian National For Leading LockBit Ransomware Group – UPI
The United States and its allies sanctioned and indicted Dmitry Yuryevich Khoroshev, accused of being the creator, developer, and administrator of the Russia-based LockBit ransomware group.
A reward of up to $10 million was also announced for information leading to his arrest and/or conviction for conspiring and participating in organized transnational crime.
Law enforcement officials in Britain and Australia likewise announced indictments and sanctions on Khoroshev.
According to U.S. officials, LockBit is one of the world’s most active ransomware groups. It has targeted more than 2,500 victims worldwide and collected more than $500 million in ransom payments.
8. Saudi’s Aramco, China’s Rongsheng Exploring Joint Venture In Petrochemicals – Reuters
Saudi oil giant Aramco said in a statement that it is exploring the formation of a joint venture in the Saudi Aramco Jubail Refinery Company (SASREF) with Chinese partner Rongsheng Petrochemicals.
It added that Aramco recently signed a cooperation framework agreement that envisions Rongsheng’s potential acquisition of a 50 percent stake in SASREF.
Aramco acquired a 10 percent interest in Rongsheng in July 2023 through its subsidiary Aramco Overseas Company BV, based in the Netherlands.
9. China’s Xi Gets Red-Carpet Welcome In Serbia – BBC
Chinese President Xi Jinping’s itinerary might have raised eyebrows in some parts of Europe. However, Serbia has recently been deepening its relationship with China, even as it continues negotiations to join the European Union.
China now claims to be Serbia’s largest foreign direct investment (FDI) source.
Xi is likely to use his trip to highlight his criticisms of NATO. That rhetoric resonates in Serbia, where most people oppose NATO membership.
10. Journalists Dismiss Official Claims Of Press Freedom In Hong Kong – RFA
Over the past decade, press freedom has gone sharply downhill in Asia’s one-time bastion of free speech as Beijing ramps up its legislation to protect “national security,” with a constant expansion of forbidden topics and “red lines” in recent years.
Hong Kong’s press freedom ranking, calculated by Paris-based Reporters Without Borders, has tumbled from the 18th two decades ago to the 135th.
11. In Rapidly Ageing China, Millions Can’t Afford To Retire – Reuters
China’s latest statistics showed that some 94 million working people—around 12.8% of the Country’s 734 million labor force—were older than 60 in 2022, up from 8.8% in 2020.
While lower than in wealthier Japan and South Korea, that share is set to skyrocket as 300 million more Chinese reach their 60s in the coming decade.
The main reason China has not built a stronger safety net for them is that policymakers, fearing the economy might fall into the middle-income trap, prioritize growing the pie rather than sharing it, the government adviser told Reuters.
12. Huawei Breaks Free From Google Ecosystem With Homegrown OS – Nikkei Asia
Huawei Technologies looks to complete its departure from Google’s Android operating system this year with the rollout of a new OS developed fully in-house, further sidestepping U.S. export controls that had cramped the Chinese company’s mobile business.
The new HarmonyOS Next ships with Huawei’s flagship Mate 70 smartphone, due out later this year. It uses memory three times as efficiently as the current operating system, HarmonyOS, and supports on-device artificial intelligence.
13. UK Rules Out Cyber Threat After Resolving Passport Gate Outage – Reuters
Britain’s Home Office said border control systems are operational after an outage that it deemed was not a cyber attack. The outage led to lengthy queues and chaotic scenes at airports nationwide.
“At no point was border security compromised, and there is no indication of malicious cyber activity,” the Home Office said in an emailed statement.
14. IAEA Chief Says Cooperation From Iran ‘Completely Unsatisfactory’ – AFP
UN atomic watchdog chief Rafael Grossi’s remark came after returning from Tehran, where he urged the country to adopt “concrete” measures to address concerns about its nuclear program.
“We have to be moving on…. The present state is completely unsatisfactory for me. We are almost at an impasse…and this needs to be changed,” the International Atomic Energy Agency (IAEA) chief told reporters at the Vienna airport.
15. North Korea’s Kim Jong Un Demolishes Multiple Buildings At His Palace: Report – NDTV
The aerial images of the North Korean leader Kim Jong Un’s winter palace, the Ryokpo Palace complex, show a dirt lot where a blue-roofed mansion once stood, as first reported by anonymous North Korean analyst “Nobody German” on X.
An expert said the demolition work suggests possible transformations, including potential property transfers to military use. It indicates that it would align with Kim Jong Un’s recent efforts to modernize its armed forces.
16. Counterfeit Oxycontin Pills Almost Always Contain Fentanyl – HealthDay News
Lab tests of counterfeit oxycodone (Oxycontin) pills seized by police in Rhode Island in 2022 found 99.3% also contained dangerous fentanyl. It was typically mixed with another potentially deadly drug, xylazine.
Both drugs make overdose more likely and more fatal, experts note.
Republished with permission from TIPP Insights
