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Consumer Sentiment Dips Despite Strong Economy: The Real Reason Why

The economic models used to predict consumer sentiment often fall short, with the actual outlook landing far below the predicted level. The Economist recently presented a graph that showed this discrepancy, and the publication attributes it to the residual impacts of Covid. However, a deeper look at the growing political polarization of our society points to a more likely explanation.

Understanding the Partisan Divide

Nowhere was the growing divide in political opinion and its effect on the economy more pronounced than in the 1990s. At the time, there was very little discrepancy in how people of different political views evaluated the condition of the economy. Fast forward to after the 9/11 attacks and Trump’s election, and the polarization of opinion had become much more pronounced.

Nowadays, voters in the two major parties inhabit alternate realities, both consuming media tailored to their biases. This creates a distinctive rift in opinion when it comes to gauging the performance of the economy. Let’s take, as an example, the diverging views reflected in Joe Biden’s ratings as President.

In contrast to the strong approval ratings for President Obama when he assumed office, Democratic voters have responded with lukewarm sentiment to Joe Biden. This sentiment is not enough to offset the overwhelmingly negative economic ratings of Republican voters, resulting in a dip in overall consumer sentiment far lower than what you’d expect from the strong economic indicators such as rising real wages and an unemployment rate of 3.8%. Consumer sentiment had sunk to levels not seen since the early 1980s, a time when the economy was much worse off than it is today.

Explaining the Discrepancy

It’s unlikely that consumer sentiment polls actually reflect public opinion accurately. One of the most telling signs of how people view the economy is their spending patterns and, by this measure, people seem to be feeling relatively good about the future. Actions likely speak louder than words when it comes to gauging sentiment.

It’s my opinion that the answer to the low polling ratings can be found in the deep political rifts resulting from years of polarization. A significant number of people in the GOP are expressing their displeasure with the current political environment through the sentiments captured in the polls, instead of accurately representing their opinion on the state of the economy.

The Worst is Yet to Come

Regardless of where people find themselves on the political spectrum, it must be noted that economic policies implemented since 2017 have been far from ideal. The long-term ramifications of an out of control federal budget will only become more evident in the years to come, making the current economy seem like the good old days for many.

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