Consumer confidence has hit its lowest point in three months, according to a recent University of Michigan study, and political affiliation has a lot to do with it.
According to the Surveys of Consumers, released by UM this morning, consumer sentiment is now at 95.7, a steep drop from January, when sentiments hit a 13-year high of 98.5. Consumer expectations saw the biggest decline, dropping from 90.3 to 85.7.
On a granular level, responses from the UM survey showed a serious political divide. The consumer sentiment of Republicans came in nearly 40 points higher than that of Democrats.
“To be sure, confidence remains quite favorable, with only five higher readings in the past decade,” said Richard Curtin, Surveys of Consumers Chief Economist. “Importantly, the data do not reflect any closing of the partisan divide.”
Nearly six in every 10 consumers surveyed made some mention—either negative or positive—of President Trump and the new administration’s economic policies.
“When asked to describe any recent news that they had heard about the economy, 30 percent spontaneously mentioned some favorable aspect of Trump’s policies, and 29 percent unfavorably referred to Trump’s economic policies,” Curtin said.
This amount of spontaneous political reference is unheard of in the survey, as is their impact on the survey’s results, according to Curtain. There was a 37-index point difference between those who voiced unfavorable political concerns and those who saw the new administration as more favorable.
“These differences are troublesome,” Curtin said. “The Democrat’s Expectations Index is close to its historic low (indicating recession), and the Republican’s Expectations Index is near its historic high (indicating expansion). While currently distorted by partisanship, the best bet is that the gap will narrow to match a more moderate pace of growth.”
Historically, Curtin said, negative sentiments tend to impact consumer spending most.
“It has been long known that negative rather than positive expectations are more influential in determining spending,” he said, “so forecasts of consumer expenditures must take into account a higher likelihood of asymmetric downside risks.”
See the full results of the survey at UMich.edu.