Republicans are suddenly warming to the US economy. Democrats have become gloomy. The economy itself hasn’t changed much in recent weeks, but something else has: There was a presidential election.
Donald Trump’s narrow win in the 2024 presidential race highlights an oddity of modern economics: Confidence in the economy is partisan. Democrats and Republicans each feel better about the economy when their party is in control of the government and worse when the other party is running things. For some Americans, the actual state of the economy matters less than who’s in charge of it.
This dichotomy shows up neatly in the latest University of Michigan consumer sentiment data. The sentiment index for Republicans jumped from 53.6 in October to 69.1 in November, putting it at the highest level since shortly after President Joe Biden took office in 2021.
Among Democrats, sentiment dropped from 91.4 in October to 81.3 in November. That’s the lowest level for Democrats in 18 months. Democrats are still more optimistic than Republicans, but a large gap grew much narrower immediately after the election.
The flip was even more stark when respondents gave their outlook for future economic conditions. The index for future expectation soared from 61.4 to 89.2 among Republicans, while it tumbled from 93.1 to 75.4 among Democrats. Republicans are now more optimistic about future conditions than Democrats for the first time since October of 2020.
Independents are more sober-minded and stable. They’re less optimistic than partisans on either side on both current sentiment and the future outlook. Both readings fell slightly for Independents from October to November, which may better reflect what’s happening in the real economy, rather than the political one.
Similar patterns held around the presidential elections in 2012, 2016, and 2020, with backers of the winning party suddenly becoming more optimistic and those affiliated with the losers more dreary. The Michigan pollsters used to ask about party affiliation only sporadically, but they made it a routine monthly question after the 2016 election.
So how is the economy actually doing? Meh, according to most Americans. Accounting for all political persuasions, the Michigan index ticked upward in November, but it remains depressed, well below 2021 levels before a bout of inflation kicked in, and even further below pre-COVID levels of 2019. Inflation factors heavily into the Michigan methodology, and inflation still nettles Americans bearing the higher cost of rent and groceries.
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Other indicators are stronger. The Consumer Board Confidence Index is slightly more buoyant than the Michigan one. Job growth is strong, and GDP growth is decent. Inflation, which peaked at 9% in 2022, is getting back to normal. Goldman Sachs puts the odds of a recession during the next year at a meager 15% (and it’s the same for both Republicans and Democrats).
But Trump himself is a wild card in the future outlook for the economy. His plans to slap new tariffs on imports and deport millions of migrants doing low-income work could nick economic growth and push inflation higher than it would otherwise be. Trump still hasn’t revealed how aggressively he’ll pursue either of those goals, but markets are bracing for a modest impact.
Long-term interest rates have been rising, for example, in anticipation of higher inflation under Trump and tighter monetary policy to combat it. Democrats might feel sure that a Trump crash is coming. Republicans see smooth sailing ahead. Maybe you’re really as well off as you persuade yourself to be.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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