Economics has a foundation in hard numbers — employment, inflation, spending — that has largely allowed it to sidestep the competing partisan narratives that have afflicted US politics and culture.
Until this year. Since US President Donald Trump’s victory in the elections in November last year, consumer sentiment has diverged in an unprecedented way, with Republicans convinced that a boom is at hand and Democrats foreseeing an imminent recession.
“We’ve never recorded this before,” said Richard Curtin, who directs the University of Michigan’s monthly survey of consumer sentiment.
Although the outlook has occasionally varied by political party since the survey began in 1946, “the partisan divide has never had as large an impact on consumers’ economic expectations,” he said.
At the same time, familiar economic data points have become Rorschach tests. That was evident after the government’s monthly jobs report Friday last week; Republicans’ talking points centered on a 10-year low in the unemployment rate, while Democrats focused on a sharp decline in job creation.
“I find it stunning, to be honest. It’s unreal,” said Michael Strain, director of economic policy studies at the conservative American Enterprise Institute in Washington. “Things that were less politicized in the past, like how you feel about the economy, have become more politicized now.”
Indeed, the night-and-day views underscore yet another front on which Americans remain polarized five months after the election, and with Trump nearing his 100th day in office.
There are some tangible reasons for the split. Many Republican states, including the Midwestern swing states that provided Trump’s margin of victory, have experienced a more sluggish recovery over the past eight years — and are thus more invested in the change promised by Trump.
Many Democratic states have bounced back more vigorously. Hence their political and economic viewpoints were jolted by November’s election result.
For example, Vermont, Colorado and Massachusetts — all won by the Democrats — are thriving, with an unemployment rate below 4 percent. In Republican strongholds like Alaska, Georgia and Alabama, the rate is well above the national average of 4.5 percent.
Rank-and-file Republicans are not the only ones who are feeling more upbeat, whether or not it is justified by the data. Sentiment among business leaders who backed Trump has also surged since the election.
David Congdon, chief executive of Old Dominion Freight Line, the trucking giant, never expected Trump to win when he voted for him in November.
“I fell out of bed when I got up in the morning on Nov. 9,” he admitted. “I didn’t quite know what I was voting for.”
Despite misfires in Washington like the failed attempt to roll back former US president Barack Obama’s healthcare policies, Congdon is definitely feeling more positive.
“Trump’s got a hard road ahead of him, but I think he’s off to a decent start,” said Congdon, who recently joined other transportation executives for a meeting with Trump and US Vice President Mike Pence.
“I’m personally optimistic about the economy for the rest of the year, and I think we will see an uptick in terms of freight deliveries,” he said. “We have picked up our hiring.”
Economists, too, find their outlook shifting with the political landscape. Before the election, Heather Boushey, a top adviser to Democratic presidential candidate Hillary Rodham Clinton during the campaign, thought “the economy was on the right track, with slow and steady growth like we’ve had over the past few years.”
Now she is much more pessimistic, especially about the economy’s long-term prospects.
Although she is pleased that the Affordable Care Act survived Republican efforts to repeal it, the gridlock has led her to believe that Trump will never get a big infrastructure spending package through the US Congress.
“I am losing hope that we will make those much-needed investments over the next few years,” said Boushey, executive director of the liberal Center for Equitable Growth.
The University of Michigan researchers have their own way of measuring the gulf between the two viewpoints and how quickly it has flipped.
Among Republicans, the Michigan consumer expectations index was at 61.1 in October last year, the kind of reading typically reported in the depths of a recession. Confident that Clinton would win, Democrats registered a 95.4 reading, close to the highs reached when her husband was in office in the late 1990s and the economy was soaring.
By March, the positions were reversed, with an even more extreme split. Republicans’ expectations had soared to 122.5, equivalent to levels registered in boom times. As for Democrats, they were even more pessimistic than Republicans had been in October.
As at the voting booth, the split in perceptions could have real world consequences.
If behavior tracks the recession-era sentiment among Democrats, who account for 32 percent of respondents in the survey, prophecies could quickly become self-fulfilling by affecting spending and investing decisions.
“If one-third of the population cut their consumer spending by 5 percent, you get a recession,” said Alan Blinder, a Princeton economist who served in former US president Bill Clinton’s administration and advised former US vice president Al Gore and Hillary Clinton on economic policy during their Democratic presidential campaigns. “I don’t think it will happen, but it’s not beyond the realm of the possible.”
To be sure, even if Democratic consumers pulled back, that would not necessarily bring on a recession. A burst of spending by bullish Republicans, who equal 27 percent of those polled by the Michigan researchers, could counteract much of that drag. Independents, who are the largest cohort in the survey, at 41 percent, remain fairly optimistic about future growth.
It is rare for “rising optimism to coexist with increasing uncertainty,” Curtin said. “The current level of optimism clearly indicates that no economy wide spending retrenchment is underway, but the prevailing level of uncertainty will limit growth in discretionary spending.”
Lawrence Summers, who served as Treasury secretary under former president Clinton and was Obama’s chief economic adviser during his first term, said he, too, was struck by the big swing in economic sentiment.
“It is a remarkably big switch from October,” he said. “If you are a Democrat, you are primed for negativity. It carries through in your view of everything else.”
A prominent Democrat himself and a strong Hillary Clinton backer, Summers is nonetheless slightly more optimistic than he was late last year, because the data on housing starts and business investment intentions has been positive, not because of the new administration’s policies.
Whether the optimists or pessimists prove more prescient about the economy’s trajectory, Summers said, the split in perceptions will persist.
“I’d bet there will be some minor convergence,” he said, “but there will still be a large divergence on what should be a matter of objective reality.”
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