Partisanship Rules Consumer Sentiment in March

Surveys of Consumers LogoANN ARBOR—The continued strength in consumer sentiment has been due to optimistic views on three critical components: higher incomes and wealth, more favorable job prospects, and low inflation expectations. All of these factors, however, have been influenced by partisanship, according to the University of Michigan (U-M) Surveys of Consumers.

Democrats expect an imminent recession, higher unemployment, lower income gains, and more rapid inflation, while Republicans anticipate a new era of robust growth in incomes, job prospects and lower inflation, according to U-M economist Richard Curtin, who directs the Surveys.

It is a rare situation that combines increasing optimism which promotes spending as well as rising uncertainty which makes consumers more cautious spenders, notes Curtin. The data indicate that spending will advance by 2.7 percent in 2017, but those gains will be uneven over time and across products.

Conducted by the U-M Institute for Social Research (ISR) since 1946, the Surveys monitor consumer attitudes and expectations. The data are available non-exclusively via Bloomberg.

ICS-Chart “There are two factors that aid our understanding of recent trends in sentiment,” said Curtin. “First, the Democratic and Republican parties have had unusual success in convincing their members that government economic policies are by far the most important determinants of economic outcomes. Second, like economists who have lowered growth prospects, consumers have done the same, and have thus judged lower rates of growth more favorably than they would have in an earlier era. While the partisan divide will likely recede in the months ahead, consumers’ new evaluative standards will resist change. Consumers will become very optimistic when growth approaches 3.0 percent. In an earlier era, consumers would have been quite pessimistic at 2017 prospects for 2.3 percent economic growth.”

Partisan Impact on Personal Finances

Partisanship had a large impact on how consumers expected their personal finances to change during the year ahead. Nearly twice as many Republicans as Democrats expected their personal finances to improve during the year ahead in the March 2017 survey. Incomes were expected to increase by 3.0 percent among Republicans, while Democrats anticipated only a 1.0 percent gain, with self-identified Independents expecting income gains of 2.7 percent.

Partisan Economic Outlook

Expectations regarding future economic conditions remained highly partisan. Continuous good times in the economy over the next five years were expected by 83 percent of Republicans, but only 24 percent of Democrats. In contrast, renewed economy-wide downturns were anticipated by 68 percent of Democrats, but only 13 percent of Republicans. Perhaps even more extreme were expectations regarding unemployment: 74 percent of Republicans anticipated a declining jobless rate, while just 13 percent of Democrats expected a lower jobless rate.

Consumer Sentiment Index

The Sentiment Index was 96.9 in the March 2017 survey, just above the 96.3 in February and well above last March’s 91.0. The Current Conditions Index was 113.2 in March, up from 111.5 in February and last March’s 105.6, and the highest level in a decade. The Expectations Index was unchanged in March from last month at 86.5 and down from 90.3 in January and below the 2015 peak of 91.0.

About the Surveys

The Survey of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the coterminous U.S. an equal probability of being selected. Interviews are conducted throughout the month by telephone. The minimum monthly change required for significance at the 95 percent level in the Sentiment Index is 4.8 points; for Current and Expectations Indices the minimum is 6.0 points.

Contact

Kory Zhao, koryzhao@umich.edu, 734-647-9069
Diane Swanbrow, swanbrow@umich.edu
The Surveys of Consumers, www.umich.edu/~umsurvey

Comments are closed.