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Economy

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Politics color views on economy

– Americans’ views of the U.S. economy are increasingly colored by politics, making consumer sentiment a less reliable gauge of the outlook for the spending that drives growth.

Self-identified Democrats and Republicans surveyed for the Bloomberg Comfort Index are showing the least agreement on the trajectory of the economy since records began in 1990. Since Barack Obama took office in 2009, the likelihood that the two groups’ views will move in the same direction is less than half what it was under George W. Bush, and less than a third of that when Democrat Bill Clinton was in the White House.

Growing political polarization helps explain the trend, according to analysts such as Steve Jarding at Harvard University. As partisan gaps widen on issues as varied as overhaul of health-care policy and restructuring tax brackets, it has become harder for consumers to separate their political views from their assessment of the economy.

What’s more, auto sales last month were the strongest since November 2007 even as consumer confidence declined in two surveys, showing that less optimism doesn’t always translate into weaker spending.

“America for 30 years has been just drowned in information on polarizing single issues,” said Jarding, a professor at Harvard’s Kennedy School of Government in Cambridge, Mass., and a former Democratic campaign manager. “It’s more difficult just to gauge the sense of the public” on economic conditions, he said.

As a result, Wall Street analysts say they rely less on such consumer surveys, including those from the Conference Board and Thomson Reuters/University of Michigan as well as the Bloomberg index, to project changes in household purchases that make up about 70 percent of growth.

“We don’t base too much of our forecast on consumer sentiment, no matter which measure, because they’re responding to things in the news in some sense that are unrelated to consumer spending,” said Daniel Silver, an economist at JPMorgan Chase in New York.

Analysts use the concept of correlation to measure the strength of the relationship between two groups, with zero indicating no discernible trend and 1 showing they are moving in tandem.

The correlation between the confidence of Democrats and that of Republicans is 0.25 since Obama started his first term. During Bush’s two terms it was 0.55, and under Clinton it was 0.95, showing consumers of different political persuasions had just about the same views on the direction of the economy in 1993 to 2001.

The Thomson Reuters/University of Michigan gauge of sentiment plunged 9.8 points in December amid negotiations in Washington over tax increases and federal spending cuts.

Consumer spending increased 0.1 percent that month, “not a huge drop-off” and illustrating that politics may obscure Americans’ actual purchasing habits, Silver said.

The Conference Board’s measure dropped to a four-month low at the end of last year.

The Michigan index dropped to a four-month low in August, and the Bloomberg comfort gauge declined four straight weeks since the beginning of last month. Meanwhile, sales of cars and light trucks accelerated to a 16 million annualized pace in August, according to data from Ward’s Automotive Group.

“Consumers don’t always do what they say, and there are many times when those two things move in opposite directions,” said Jonathan Basile, an economist at Credit Suisse in New York. “Sometimes people will spend to make themselves feel better when things are bad.”

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