Democrats and Republicans hold starkly diverging views of the U.S. economy and the gap is widening as the pandemic persists, casting a shadow over President Donald Trump’s hopes for a V-shaped recovery powered by pent-up demand as nationwide lockdowns ease.
One closely watched metric, the University of Michigan Index of Consumer Sentiment, reveals the political divide over the economy. Overall, the index rebounded from 72.3 in March to 78.9 in May on the strength of better-than-expected May jobs numbers. But it only ticked up 0.7 points for Democrats while surging 11 points for Republicans.
That gulf could expand as Election Day approaches and political sentiment becomes more entrenched closer to the vote.
Economists and policy makers use the monthly sentiment surveys to predict future consumer spending, which accounts for 70% of the U.S. economy. Any political disconnect reflected in the numbers could have real-world economic consequences with the U.S. officially in a recession touched off by the pandemic.
Republicans may be more inclined to increase consumption, emboldened by Trump’s push to reopen the U.S. economy. But Democrats who feel less confident during a Trump presidency may hold off on spending until after the election, potentially hampering any recovery.
Economists have long observed partisan differences in consumer sentiment, with voters affiliated with the party in power always reporting better current conditions for their household and more optimism for the future.
“This political gap between Democrats and Republicans has shown up in our data going back to the Reagan administration, but it never persisted,” said Richard Curtin, the director of the University of Michigan’s widely cited consumer survey. “Only since Trump has been in office — and it occurred almost immediately after he won the election — did we see this big difference.”
But it’s unclear the extent to which members of the party out of power are really worse off, or if respondents are simply projecting their political views on to how they view the economy.
‘Moral Perspective’
“The more progressive movement is certainly wanting to have the economy address issues on a moral perspective of inequality and racism,” Curtin said. “And the other side says that the best way to improve those issues is through free markets and growth. And I think this election may be a turning point in that debate.”
Even after 44 years running the consumer confidence survey, Curtin acknowledges that “socially desirable responses” could be coloring the survey data as people say one thing about economic conditions while behaving another way.