Partisan Euphoria By Democrats Drives Consumer Sentiment Higher

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The resurgence in covid infections and deaths was overwhelmed in the first weeks of December by Democrat partisan euphoria over the 2020 presidential election, triggering an unexpected improvement in consumer sentiment.

The University of Michigan’s index of consumer sentiment made a surprise jump higher to 81.4 from 76.9 in November. Economists had expected the midmonth December reading to register a slight decline.

The change was driven by Democrats feeling more favorable about the future, somewhat offset by Republicans feeling more pessimistic.

“In the five months from August to December, the Expectations Index among Democrats rose by 39.5 points, and fell among Republicans by 34.9 points,” said Richard Curtin, the survey’s chief economist.

Self-identified independents have not reported such politically volatile economic expectations. Instead, they have maintained their economic expectations in December at the same unfavorable levels as when the covid crisis began nine months ago.

The index of current conditions recorded a jump from 87 to 91.8 but remains 20.5 percent below its year-ago level. The index of near-term expectations rose to 74.5 from 70.5 but remains 16 percent lower than a year ago.

“Just as four years ago, the post-election partisan shifts in economic expectations are too extreme to be justified by economic fundamentals,” Curtin said.

Curtin said that most of the gain in the combined index was due to a more favorable long-term outlook for the economy, while the year ahead prospects as well as personal finance remain unchanged.

“In the immediate future, job losses and income declines due to shutdowns are expected to increase, and the long priority queues before most consumers can be vaccinated will make the wait amid rising deaths all the more difficult to endure,” Curtin said.

A separate sentiment index released Thursday, the Refinitiv/Ipsos Primary Consumer Sentiment Index, sunk to 48.1 for December, down from 52.5 in November. This index had been rising since August but the post-electin decline in December completely undid any progress in the index.

“COVID-19 cases, hospitalizations, and deaths are climbing across the country,” Chris Jackson, senior vice president at Ipsos Public Affairs, said “This, paired with new business shutdowns, appears to be greatly affecting American consumer confidence.”

The next step for consumer sentiment may depend on whether state and local governments impose further lockdowns, how far Covid-19 deaths and hospitalizations rise, and if Congress can agree on aid legislation.

“A renewed round of federal relief will prevent much greater financial harm to households, small firms, and local governments. Even if immediately adopted, the payments will not reach recipients for at least a month, allowing renewed hardships to dominate the holiday season. As a consequence, the DC dysfunction may act as the grinch that stole Christmas!” Curtin said.

On Friday, New York governor Andrew Cuomo announced that the state would once again ban indoor dining in an attempt to stem the rise of coronavirus infections.