Political discord invades once-immune economy
Republicans expect boom times, while Dems fear recession
Economics has a foundation in hard numbers — employment, inflation, spending — that has largely allowed it to sidestep the competing partisan narratives that have afflicted U.S. politics and culture.
But not anymore. Since Donald Trump’s victory in November, consumer sentiment has diverged in an unprecedented way, with Republicans convinced that a boom is at hand, and Democrats foreseeing an imminent recession.
“We’ve never recorded this before,” said Richard Curtin, who directs the University of Michigan’s monthly survey of consumer sentiment. Although the outlook occasionally has varied by political party since the survey began in 1946, “the partisan divide has never had as large an impact on consumers’ economic expectations,” he said.
At the same time, familiar economic data points have become Rorschach tests. That was evident after the government’s monthly jobs report Friday; Republicans’ talking points centered on a 10-year low in the unemployment rate, while Democrats focused on a sharp decline in job creation. Feeling more upbeat
There are some tangible reasons for the split. Many Republican states, including the Midwestern swing states that provided Trump’s margin of victory, have been slower to recover over the past eight years — and are more invested in the change promised by Trump. Many Democratic states have bounced back more vigorously. Their political and economic viewpoints were jolted by November’s election result.
For example, Vermont, Colorado and Massachusetts — all carried by the Democrats — are thriving, with an unemployment rate below 4 percent. In Republican strongholds like Alaska, Georgia and Alabama, the rate is well above the national average of 4.5 percent.
Rank-and-file Republicans aren’t the only ones who are feeling more upbeat, whether or not it’s justified by the data. Sentiment among business leaders who backed Trump also has surged since the election.
David Congdon, chief executive of Old Dominion Freight Line, the trucking giant, is definitely feeling more positive.
“Trump’s got a hard road ahead of him, but I think he’s off to a decent start,” said Congdon, who recently joined other transportation executives for a meeting with Trump and Vice President Mike Pence.
“I’m personally optimistic about the economy for the rest of the year, and I think we will see an uptick in terms of freight deliveries,” he said. “We have picked up our hiring.” An extreme split
The University of Michigan researchers have their own way of measuring the gulf between the two viewpoints and how quickly it has flipped.
Among Republicans, the Michigan consumer expectations index was at 61.1 in October, the kind of reading typically reported in the depths of a recession. Confident that Clinton would win, Democrats registered a 95.4 reading, close to the highs reached when her husband was in office in the late 1990s and the economy was soaring.
By March, the positions were reversed, with an even more extreme split. Republicans’ expectations had soared to 122.5, equivalent to levels registered in boom times. As for Democrats, they were even more pessimistic than Republicans had been in October.
As at the voting booth, the split in perceptions could have real-world consequences.
“If one-third of the population cut their consumer spending by 5 percent, you get a recession,” said Alan Blinder, a Princeton economist who served in the Clinton administration and advised Al Gore and Hillary Clinton on economic policy. “I don’t think it will happen, but it’s not beyond the realm of the possible.”
A burst of spending by bullish Republicans, who equal 27 percent of those polled, could counteract much of that drag. And independents, the largest cohort in the survey, at 41 percent, remain fairly optimistic about future growth.
It is rare for “rising optimism to coexist with increasing uncertainty,” said Curtin, the Michigan expert. “The current level of optimism clearly indicates that no economywide spending retrenchment is underway, but the prevailing level of uncertainty will limit growth in discretionary spending.”