Consumer Optimism Climbs Sharply Following Election

Consumer sentiment showed a sharp uptick following the 2016 election, report the University of Michigan (U-M) Surveys of Consumers. The post-election Sentiment Index was 8.2 points above the November pre-election reading, producing an index 6.6 points higher for the entire month. The Sentiment Index was 93.8 in the November 2016 survey, up from 87.2 in October and 91.3 in November 2015.

U-M found the post-election surge in optimism among all income and age subgroups and across all regions of the country. According to U-M economist Richard Curtin, who directs the surveys, the upsurge in favorable economic prospects is not surprising given the president-elect’s populist policy views, and it was perhaps exaggerated by what most considered a surprising victory as well as a widespread sense of relief that the election had finally ended. Overall, the data indicate that real personal consumption expenditures will advance by 2.5 percent in 2017.

“No surge in economic expectations can long be sustained without actual improvements in economic conditions,” says Curtin. “Presidential honeymoons represent a period in which the promise of gains holds sway over actual economic conditions. Presidential honeymoons, however, can quickly end if they are unaccompanied by prospects that economic conditions will actually improve in the future.  President-elect Trump appears to appreciate the importance of his first hundred days; the key issue is whether his economic policies will resonate with the nation’s consumers. The honeymoon may be shorter than usual given the intensity of the opposition, although President-elect Trump has proven himself to be a skilled communicator.”

U-M’s survey reports that more consumers expect their finances to improve during the year ahead than in any other survey during the past decade. Furthermore, they also anticipate rising living standards and the most favorable inflation-adjusted income gains since October 2006. Those anticipated gains were found among households with incomes in both the bottom third of the income distribution and the top third.

The latest survey found more consumers expecting an improving economy. Almost half anticipate an expansion in the economy as a whole in the year ahead, and for the next five years. This represents an optimistic view U-M found was exceeded in only four other surveys in the past decade. Most of the surveyed also do not expect any change in the current low rate of unemployment.

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