Our Partisan Divide Extends To The Economic Outlook, Too

Half of us are making bad bets on the future of the economy. But which half?

Consumer confidence is up overall, but the devil’s in the details and recent reports show an astonishing gap between Republican and Democrat expectations for the economy.

The March report from the University of Michigan’s long-running Index Of Consumer Expectations indicated that, at 97.6, the overall score has surged.

The bad news? Our partisan divide extends to our economic outlook. Both sides have unrealistic expectations, and one side is going to end up wrong.

Among Democrats, the March Expectations Index at 55.3 signaled that a deep recession was imminent, while among Republicans the Index at 122.4 indicated a new era of robust economic growth was ahead. The number is even more divided than February’s report, indicating attitudes beyond mere post-inauguration euphoria/jitters.

Continuous good times in the economy over the next five years were expected by 87% of Republicans, but only 22% of Democrats. In contrast, renewed economy-wide downturns were anticipated by 71% of Democrats, but only 11% of Republicans. Even more extreme: Seventy-five percent of Republicans anticipated declining unemployment, compared with just 12% of Democrats.

April’s print, while still deeply divided, showed the first glimmers of a convergence — and further consumer evidence of what former Fed Chairman Alan Greenspan referred to as “irrational exuberance” more than 20 years ago.

Consumer sentiment inched upward in early April mainly due to more favorable views of current economic conditions. The Current Economic Conditions Index rose to its highest level since 2000 and nearly reached its all-time peak of 121.1 set in 1999. The Expectations Index improved only slightly, remaining largely unchanged at favorable levels for the past three months.

Back to the divide: While partisanship had no impact on the Current Conditions Index (Democrats and Republicans differed by just 0.4 points), the data suggest the beginning of a convergence on the Expectations Index, with the figure for Democrats rising 7% and falling for Republicans by 7%, although the gap still remained an astonishing 50.5 Index points.

This is more than just angels dancing on the head of a statistical pin. Broad consumer sentiment — good or bad — has strong implications for the economy.

Although most feel like the economy is in good shape today, half of us are making bad bets on the future, with no indication which half it is.

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