Investors More Pessimistic About Economy: Survey

U.S. investors are growing gloomier about the economy thanks to the looming federal debt and the uncertainties surrounding the presidential election, as one of the closely watched investor optimism indices declined for the third time this year.

The latest Wells Fargo/Gallup Investor and Retirement Optimism Index, released today, slid to +16 in July, down from +24 in May and +40 in February. Growing pessimism about the future of the US economy drove the fall, and non-retired investors were the grumpiest, reporting a 10-point slide in optimism from May. Retired investors were more sanguine, as their optimism stayed flat. Now the percentage of investors who believe it's a good time to be in the markets is well under half - just 41% - compared to 52% who were game in February.

The mounting federal debt - dubbed the "fiscal cliff" in the report, is worrying investors, with 54% reporting that the issue is taking "a great deal" or "quite a lot" of their attention. Some 61% believe that if Congress doesn't address the problem, the US economy will slip into recession next year. Further, nearly three-quarters think the economy could get worse in the second half of this year. Some 71% say worries about the debt problem will force a pullback on spending and investing by both consumers and businesses, which could harm the economy in the second half of this year.

"People watched the impasse of the debt ceiling negotiations last summer and the effect the breakdown had on the markets and 401(k) balances, so it makes sense that investors are attuned to policy affecting debt and taxes," said Joe Ready, Director of Wells Fargo Institutional Retirement and Trust, in a press release. "Investors are clearly telling us they worry about a recession."

The election is also causing sleepless nights. Three-quarters of investors say this year's presidential and congressional elections will affect their net worth. As large a percentage says fixing the US economy is the joint responsibility of the President, Congress and the private business sector. Only 7% lay it at the feet of the President alone, while 11% say it's Congress's job.

But they don't seem to hold out much hope for amity. A full 69% of investors said the top fact affecting the investment climate is the "politically divided federal government." That is up from 64% in May. The next most popular culprits were high unemployment and the budget deficit. 

In terms of their savings and investing since the last presidential election, investors appear to be better off. Some 37% say their lot has improved, while 33% say they are worse off. But 78% report their household income has either increased or stayed the same since 2008. Meanwhile, just under one quarter - 24% - of investors say they are combating this by saving more than they did before the recession began in 2008. Some 43% say they are unable to save as much as they did four years ago. Regardless of the size of their nest egg, the priorities for those savings are clear: retirement gets 41% of the vote, 24% report building an emergency cash cushion and 11% are saving for education.

The index was compiled following a survey conducted from June 30 through July 11 of 1,020 investors randomly selected from across the country. The margin of error is plus or minus three percentage points. Investors surveyed had to have total savings and investments of $10,000 or more. That's about two in five American households. The sample is comprised of 74% non-retired investors and 26% retirees.  

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