, , , , , , , , , , ,

Since psychology and emotions can affect how much individuals and companies spend and invest, and since U.S. economic growth does show signs of slowing from a solid but less-than-torrid pace, surveys purporting to track levels of consumer and business confidence understandably have attracted much more attention than usual.

One big possible problem, though: This era’s white hot political partisanship may be undercutting the usefulness of these soundings. The evidence comes from the widely followed University of Michigan survey of consumer sentiment, and it indicates both that such partisanship has greatly increased and influenced the results since the 1980s administration of President Ronald Reagan, and that most recently, more of this bias has been demonstrated by Democrats than Republicans.

The Michigan findings – which break out results according to whether respondent “usually think” of themselves as Republicans, Democrats, Independents, “or what?” – don’t permit conclusions on longer term trends to be drawn with great confidence. That’s mainly because the university’s Survey Research Center presents only five months worth of results for the Reagan administration, which lasted for eight years, and only twelve months worth for George W. Bush’s similar two-term presidency. Nonetheless, the data for those two periods do contrast significantly with those for the Obama and Trump administrations, which are complete (and bring the story up through this month).

My measure of partisanship compares the degree to which the results for Republican and Democratic identifiers (for the headline Michigan number) diverge from the results for Independent identifiers – which I use as a proxy for non-partisanship, based on the assumption that such Americans don’t permit politics to impact their views on the economy. For example, if during a given month, Independents’ assessment of the economy registers as a 50, Democrats’ as a 20, and Republicans as a 60, the Democrats’ views would be judged to be more partisan. In order to produce figures for each presidency, I calculated the average monthly totals for each of the three political groups for the duration of that President’s administration.

This method shows, not surprisingly, that partisanship has always influenced assessments of confidence. That is, when Democratic Presidents hold office, Democrats’ confidence levels are invariably higher than Republicans’, and vice versa. But during the Reagan years, the average monthly ratings for the economy found by the Michigan researchers were Democrats, 87.66; Independents, 98.14; and Republicans, 108.12.

So the partisan effect clearly was present, but the Democrats’ and Republicans’ perceptions diverged from those of the Independents by about the same degree.

No results are presented for either George H.W. Bush’s nor Bill Clinton’s administrations, but the results for George W. Bush’s presidency were Democrats, 63.48; Independents, 66.04; and Republicans, 78.38. That is, Democrats were only slightly more downbeat. More specifically, their ratings of the economy were 96.12 percent as good as the Independents’, while the Republicans’ was 118.69 percent of the Independents’.

During the Obama years, these results were almost exactly reversed: The average confidence level recorded for Democrats was 84.61; for Independents, 72.67; and for Republicans, 69.63. In this case, the Republican ratings were 95.12 percent as good as the Independents’, while the Democrats’ were 116.43 percent of the Independent’ score. But the partisanship showed by the Democrats under President Obama was still almost exactly as great as that showed by the Republicans when George W. Bush served in the Oval Office.

This pattern has continued through Donald Trump’s presidency so far, but Democratic partisanship looks somewhat stronger compared with the results for the Obama years. During the 32 Trump months, the average Democrat’s rating for the economy has been 76.61, the average Independent’s was 96.37, and the average Republican’s was 120.14. As a result, the Democrats’ judgments on the economy have been only 79.50 percent as positive as the Independents,’ but the Republicans’ has been 124.67 percent the size of the Independent score.

Put differently, during the Obama years, the Republicans’ judgments about the economy nearly matched the Independents’ (being 96.12 percent of the Independents’ average), but during the Trump years, the Democrats’ judgments came to only 79.50 percent of the Independents’ average. Both Democrats and Republicans were much more bullish on the economy under their respective Presidents than were Independents, but the Republicans’ “over-optimism” under Mr. Trump hasn’t been dramatically greater than the Democrats’ “over-optimism” under Mr. Obama.

Another sign of relatively great Democratic partisanship:  According to the Michigan research, Democrats’ optimism about the economy so far this year has weakened much faster than Republicans’.  And Independents’ confidence is actually up slightly so far. 

One cause for optimism about assessing consumer confidence stems from the divergence between the results for the Trump presidency and those for his predecessors recorded by the Michigan researchers. They could suggest that the Trump years are outliers, and that if he’s defeated in 2020, partisanship will remain significant, but will return to normal levels – at least for recent decades. Pessimists, however, can just as reasonably argue that the Trump years might represent a decisive break from the recent past. If the latter group is right, assessing the economy’s prospects by using consumer sentiment surveys – already a challenging task –will become more difficult than ever.