Record Levels Of Strength In Economic Sentiment Reports

As regular readers know, from time to time I opine on investor sentiment whether it is the AAII Sentiment Survey, the Investor Intelligence Advisors' Sentiment report or the NAAIM Exposure Index. At the moment, suffice to say that these 'investor' sentiment reports are neither overly bullish or overly bearish and conclusions drawn from them are most useful when the data are at extremes. Below is a chart of last week's bullish reading from the AAII Sentiment Survey and its current reading falls between + and - the one standard deviation levels.


However, sentiment surveys that focus on individuals' (consumers and workers) perceptions of economic data points are decidedly favorable. One such measure is the monthly IBD/TIPP Economic Optimism Index. This index is, "a collaboration of Investor's Business Daily and TechnoMetrica, gauges how confident consumers, workers and investors are in the pace and direction of the U.S. economy. As with all of IBD/TIPP's proprietary monthly indexes, a reading above 50 signals optimism, below 50 pessimism." This index has been above 50 since October 2016.

Two other components to the IBD/TIPP report is the Quality of Life measurement and the Financial Stress Index. The Quality of Life Index hit a 14-year high with the May report and the Financial Stress Index is at a record low for that index.

Two related factors are likely contributing to these favorable poll results. First is the rise in median household income. The Census Bureau tracks this data on an annual basis with a significant lag. However, Sentier Research tracks the data monthly as displayed below in the household income index. As reported by IBD, median household income is at its highest level, after adjusting for inflation, in almost 50 years.

Also included in the above chart is the unemployment rate which was reported at a better than consensus 3.8% on Friday. Notable in the employment report was the 2.78% year over year increase in average hourly earnings.

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