by David Moon
When the stock market increased five percent in the 14 days following Donald Trump’s election, generally surprised commentators ascribed the Trump jump to republicans, Wall Street or greedy bankers. None of those three bogeymen, however, explains the skyrocketing post-election consumer sentiment figures. By every measure and across demographic categories, Americans have a more positive economic outlook than a month ago.
In the days following the presidential election, the University of Michigan Consumer Sentiment Index increased eight points above its pre-election reading, indicating, according to the Wolverine academics who gather and publish this data, greater optimism about personal finances and improved prospects for the entire economy.
Apparently the Michigan economists did not survey any of my still shocked, depressed and verbose democrat Facebook friends.
What should have been a signal to embarrassed political pundits was that the index had dropped an identical eight points in the few months prior to the election. Changing consumer sentiment a reflection of the popularity of the status quo; rapidly deteriorating sentiment in the fall was a sign that consumers wanted some sort of change.
When Barack Obama flipped the White House from red to blue in 2008, it should have been no surprise; consumer sentiment had dropped 20 percent in the months leading up to John McCain’s failed attempt at securing a third consecutive presidential term for republicans. Neither should Obama’s 2012 reelection shocked anyone; he had a 13 percent consumer sentiment improvement at his back.
Changes in consumer sentiment aren’t infallible predictors of presidential election outcomes, but significant moves immediately prior to elections are insightful. There is an obvious intuitiveness to that. Pocketbook issues are powerful, and when consumers are anxious they want change.
But what about after the election? Can the sharp rise in consumer confidence be so intuitively ascribed to the election of Donald Trump? My happy and verbose republican Facebook friends suggest so. Bloomberg News speculates that the increase reflects a honeymoon period for the president-elect that could soon fade.
The problem with the politically safe “new president honeymoon period” explanation is that history doesn’t support the notion of a post-election president-elect honeymoon with consumers. Consumer confidence rose immediately following only three of the six “change elections” since 1972: Nixon in 1972, Carter in 1976 and Clinton in 1992.
A better explanation of the November jump in consumer sentiment is simply a continuation of a longer-term trend that has been occurring for more than two years. The increase immediately after the election wasn’t the aberration; the aberration was the five-months of decline immediately preceding the election.
The index level has simply returned to where it was in June, before the exasperating election dominated the daily news. That is, consumer sentiment increased because the election ended, not because of its outcome.
David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN)