The Politics of Sentiment
The politics of, ooh, feeling good.
I wanted to follow up on our CONsumer CONfidence T-Report and thoughts on the University of Michigan sentiment survey.
Consumer Confidence versus Independents
The data on sentiment by political affiliation seems to go back to the middle of 2008. I’ve included this chart because
1. It demonstrates that “independents” are very representative of the average of consumer sentiment (I don’t know the relative size of each political association in terms of this survey, but I’ll assume for now that it isn’t so big as to skew the results).
2. It allows me to avoid including the independents in later charts, since it is effectively one and the same with the survey, making those charts easier to read.
Consumer Confidence versus Political Affiliations
In this chart, you can see that the difference between parties was minimal when the series were first introduced. It expanded a bit during the 2nd Obama administration, but then started to diverge after President Trump election. The sentiment turned on a dime. Literally, one day Dems were happy and Republicans were nervous and the next day, they had opposite outlooks on the world.
Similarly, we saw another similar shift after President Biden won. While no one was particularly optimistic at that time, the relative optimism changed and remains extremely large.
Yes, there are reasons you could see this sort of economic outlook deviation. SALT taxes tended to affect different parties (based on where they lived) differently. Some impact could be attributed to what states and regions people are moving out of versus where they are moving (I’m assuming home price outlook affects sentiment, and that is pretty local). But as a whole, it seems odd that Republicans have the worst outlook relative to the average than at any point since 2007, which encompasses some pretty interesting periods. While Dems aren’t the happiest they have been relative to the average, they are pretty darn happy.
Difference By Party
The difference by party is extreme! We went from periods of time where there was relatively little difference, to what seems like increasingly large differentiation by party, and clearly tied to Presidential elections (on this quick glance, there don’t seem to be huge moves linked to mid-term elections).
It is difficult, given the little bit of data and the time I had to determine if there are real economic reasons the outlooks would be so different. Yes, I can see how some policies shape to make one group happier than the other, which would impact their outlook, but the deviation seems so extreme, that it is difficult to believe, that a purely logical economic assessment would produce such extreme deviations.
So, are people responding in a way that reflects their political view rather than their economic outlook? Are they responding this way because they truly believe that their economic outlook is that different?
I don’t know the answers, but I think as we prepare for Thanksgiving and get friends and family around the table, we should know that, at least as far as the University of Michigan survey is concerned, people’s economic sentiment is highly correlated to their political belief! (for full disclosure, I am Canadian and cannot vote in the U.S., so am not affiliated with either party, but that won’t stop me from watching my son play in the Turkey Bowl and sitting down to a giant feast on Thursday!)
This divisiveness doesn’t seem good for the country, and likely makes getting good policy enacted almost impossible as the divergence is so large. I’m encouraged there is some middle ground, but this divisiveness will set the table for the next T-Report (not the Thanksgiving table) as I want to explore inflation and policy response in more detail (I’ve also been challenged to channel Taylor Swift into a report, and might need some help on that, because unlike the Re Flex, where I could only think of one song, Taylor Swift’s repertoire is so large, it will be difficult to come up with a single theme, though there are some front runners as the topic is inflation and mismanagement of perceptions). From a market’s perspective, everything still holds from yesterday’s (Take Me Down to the Bitcoin City).
Have a Great Thanksgiving!