A third possibility -- and one I personally find likely -- is that surveys of consumer and business confidence have systematic errors that make them unreliable in certain economic and political climates but not in others.
Surveys have some predictive power, but only a bit. The Index of Consumer Sentiment is believed to explain only 13 percent to 26 percent of the variations in economic output. Similarly, financial surveys have a slight bit of ability to predict the stock market, but only when many are used in conjunction -- and even then, the signal is a weak one.
With all this noise, error and uncertainty, there’s plenty of room for systematic errors to arise. Surveys may be very predictive in certain conditions but terrible in others. If so, the U.S. could be in the middle of one of the latter periods.
One big source of systematic error is partisanship. It’s well known that the party of the president has a dramatic effect on people’s views of the economy. Before the election in November, Democrats held a much more favorable view of the economy than did Republicans; after Trump won, that gap promptly flipped. Republicans now claim to be extremely confident about the economy, while Democrats report pessimism.
If CEOs are more likely to be Republican, then partisanship could explain the weirdly high CEO confidence numbers. The bias in the Surveys of Consumers is harder to assess, but the emotionally charged election seems like it could have easily had an effect on survey response rates.
So it’s possible that survey numbers are registering Trump supporters’ euphoria rather than a real hard-nosed forecast of better times ahead. Sentiment surveys aren’t useless, but they probably warrant less attention than the economy’s hard data.
This Bloomberg View column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.