Consumer optimism takes a dive, despite buoyant stock market

A new Monitor/TIPP poll finds that 6 in 10 Americans, facing shrinking income and rising taxes, say that the economy is still in recession, despite economic reports that the slump is over.

Kevin Lamarque/Reuters
A visitor takes a photo of the Capitol on March 4. The failure by President Obama and Republicans to agree to halt the $85 billion 'sequester' cuts virtually guaranteed that fiscal issues would remain center stage in Washington for weeks, depressing confidence in the political system to help the economy.

Americans’ overall economic mood has soured significantly during the past month, as rising gas prices, higher payroll taxes, and disarray in Washington have all taken a toll on consumers.

That’s the finding of a new Christian Science Monitor/TIPP poll, conducted between Feb. 25 and March 5.

The poll’s monthly index of economic optimism fell to a reading of 42.2, down sharply from 47.3 a month earlier.

Any reading below 50 signals general pessimism in Americans’ economic spirits

The decline represents a worrisome signal, even though the Monitor/TIPP poll arrives as the overall mood in financial markets is bullish. On Tuesday, the Dow Jones Industrial Average moved to a record high in morning trading, finally regaining ground lost during the recession of 2007-09.

The stock market appears to be signaling investor confidence that the US will avoid a recession, and that corporate profits will continue to rise. That, in turn, increases net worth for millions of families who have savings invested partly in stocks.

But several other factors have weighed on the consumer outlook.

“The job market is still persistently weak,” says pollster Raghavan Mayur, president of TechnoMetrica Market Intelligence, which conducts the poll for the Monitor and for Investor’s Business Daily.

“Income is getting shrunk,” he adds, by the recent expiration of temporary payroll-tax relief. That amounts to a 2 percent pay cut for workers.

A rise in gas prices acts like another tax hike, while high-income families also face higher income taxes in the new year.

Gas costs an average of $3.74 per gallon as of Tuesday, up from $3.51 a month ago, according to the AAA Daily Fuel Gauge Report.

The slack job market explains why 6 in 10 Americans, in the poll, continue to say that the economy is in recession, even though economists say the slump officially ended in the middle of 2009.

The one-month dive in optimism, by contrast, may hinge largely on other factors – gas prices and tax hikes, coupled with doom-and-gloom sound bites from Washington tied to automatic spending cuts known as the “sequester.”

All three components of the optimism index fell in the latest poll. Respondents said their personal financial situation has worsened during the past month, that their view of federal economic policy had dimmed, and that they have weaker hopes for the overall economy during the next six months.

The current index reading is a bit more pessimistic than where the gauge stood in December 2007, as the nation officially entered recession. But the index hasn't sunk to the below-40 lows that were reached during that recession and in 2011, when federal politicians were gridlocked over the nation's debt limit.

Polls of consumer confidence can be volatile, with changes in energy prices and in other news that can ebb and flow.

But they can also sometimes be indicators of turning points in the economy.

For now, the stock market and the poll are telling different stories. Is one wrong? Are both partly wrong?

It’s possible that the stock market will need to temper some of its enthusiasm, if the payroll-tax hike and sequester cuts weigh on economic activity. Some economists see a real risk of falling back into recession – something the typical investor isn’t expecting.

It’s also possible that consumer optimism will revive in a month or so, if it appears that concern about how Washington policies will affect the economy were overblown. If the stock market keeps rising, that, too, could raise the overall optimism level.

But Mr. Mayur says that a sustained upturn in confidence will hinge on what happens in the job market.

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