The Wrongologist

The Daily Escape:

Sunrise, Smugglers Beach, Yarmouth, MA – July 2022 photo by Sue Frageau

We all hear the negative news, and fewer of us hear what’s positive. Bloomberg’s Matt Winkler says that the measures that track confidence in the economy are being skewed downward by politically disgruntled Americans, mostly people on the Right. Here’s a chart:

There’s plenty of evidence that the Democrats are terrible at political messaging. But, even though inflation is at 40-year highs, we need to ask why consumer sentiment seems so low when the economy is doing pretty well.

Winkler’s point is this level of negativity makes little sense economically but as the chart above shows, it’s consistent with partisanship. And he makes a compelling case that the current sentiment levels are disconnected from the overall state of the economy relative to historic levels. More from Winkler:

“Never mind that the deaths related to Covid-19 plunged 78% from the first to the second quarters, that 10 million new jobs have been created, that unemployment at 3.5% represents a 53-year-low, that corporate earnings rose to a record and that the confidence of chief executive officers remains above its long-term average. Not to mention that total household net worth soared by $18.1 trillion in 2021, the most under any president…”

Here’s a different chart from Barry Ritholtz showing the University of Michigan Sentiment Index going back to 1978, annotated to show previous economic turndowns:

The chart shows that the current sentiment readings are worse than:

1. 1980-82 Double Dip Recession
2. 1987 Crash
3. 1990 Recession
4. 9/11 Terrorist Attacks
5. 2000-2003 Dotcom implosion
6. 2007-09 Great Financial Crisis
7. 2020 Pandemic Panic

Does it make any sense that today’s consumer sentiment would be worse than it was for all of those previous economic crises? It does not.

It seems that Republicans are indifferent to the positive developments. The University of Michigan’s national Consumer Sentiment Index has plummeted 50% under Biden to an all-time low, primarily due to Republicans’ disapproval of an economy led by a Democratic President.

Bloomberg found that Democrats also aren’t as approving when their Party isn’t occupying the White House. But in contrast to Republicans, Democrats’ confidence correlates closely with rising and falling gross domestic product and unemployment trends.

To be sure, the highest inflation level in 40 years, as measured by the Consumer Price Index at 9.1%, for June (although July measured a lower 8.5%) is punitive to the least affluent voters, the traditional base of Democrats.

Republican are amplified by FOX News in their views that the economy is in terrible shape. When the Commerce Department said on July 28 that the economy contracted for a second consecutive quarter, the Fox Business channel declared, “We are officially in recession.”  But, as Wrongo and many others have said, there is no “official” recession until the nonpartisan economists of the National Bureau of Economic Research declare it.

It’s a perplexing time for economists. Overall activity as measured by GDP has contracted, but it doesn’t feel like a recession. The economy has added 2.74 million jobs this year through June. This earnings season has shown that members of the S&P 500 Index are on track to post record profits for the second quarter.

But none of this is apparent in the Michigan Sentiment Index, perhaps because Republicans running for office across the country in 2022 are saying the economy is terrible. They are the same people who are still denying the results of the 2020 election.

Paul Krugman asks why Biden isn’t getting any credit for the 10 million new jobs created in his first two years in office:

“Some polling suggests that the public may not be aware that we’ve been creating jobs at all, let alone at a record pace. And we’re in a partisan environment where politicians…can make obviously false assertions and have their supporters believe them. The other day Trump told a crowd that gas in California costs $8.25 a gallon, and nobody laughed. (It was actually $5.43 at the time.)”

Meanwhile, Biden is doing exactly what he promised when he got elected. And he’s succeeding against the odds with only occasional bipartisan support. His success shows that what’s hurting the consumer sentiment polling is partisanship and disinformation.