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On the radar: Consumer confidence unlikely to be blunted in 2020 election cycle as long as labor market is strong

It is sometimes speculated that the tone of an election year can affect consumer confidence. As the 2020 Presidential election season advances, it is question as to whether the contentious rhetoric and competing narratives about the consequences of the choice will cut into consumer confidence, and subsequently consumer spending. In looking over recent election cycles, I don’t see the evidence as particularly substantive in that regard. Rather, it is more the condition of the economy drives consumer perceptions and consumer behaviors.

In comparing the University of Michigan Consumer Sentiment Index to Presidential election years, it seems to me that it is the outcome of the election that has the most impact on the direction of consumer confidence. The months leading up to Election Day see some variation, but generally if confidence was high to start with – say a reading of around 90 or above – it stays more-or-less elevated. In post-recession years like 1992 and 2012 or during a period of recession like 2008, lower and more volatile readings reflect the greater uncertainty.

The same seems to be true for perceptions of current conditions. Those for six months in the future do tend to look less optimistic, at least earlier in the cycle. Having a sense of who is more likely to win the election in the final months of the race seems to improve the outlook for consumer.

Confidence is high at the start of 2020. Consumers have a lot to buoy their optimism with a strong labor market, low interest rates, affordable household energy prices, and rising incomes. As a result, consumer spending has been relatively solid and supportive of overall growth even as other contributors to GDP have been less so, especially for business investment. In these circumstances, while politics may intrude on consumers’ sense of optimism, it probably won’t be enough to deter spending as long as there is a feeling of present employment security and a positive outlook for household balance sheets.

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