The Economic Costs of War Drag Down Consumer Confidence
Americans are increasingly gloomy about the U.S. economy.
The Conference Board said Tuesday that its index of consumer confidence fell in May. It wasn’t all bad news, however. While views of the present situation fell, the outlook improved slightly. Views of labor market conditions and business conditions six months from now are still pretty dismal, but they improved a bit in May. The year-ahead inflation expectation measure also improved.
Last week’s consumer sentiment survey from the University of Michigan delivered a much bleaker picture of consumer views of the economy. Its index fell to an all-time low, with both the outlook and the view of current conditions worsening. Year-ahead inflation expectations also worsened.
Why the divide? The University of Michigan’s measure is very focused on what we used to call “pocketbook issues,” like whether it is a good time to buy a major appliance. This makes it much more responsive to changes in inflation. The Conference Board’s measure is more focused on labor market conditions—how easy is it to find a job—and broader business conditions. It’s possible the University of Michigan’s spending-focused questions influenced the view of inflation expectations.
Gallup has its own index, which it calls an economic confidence index. This also worsened in May, falling to its worst level since 2022, when Bidenflation was rampaging through the economy and real household incomes were contracting. The Gallup ECI is now at -45. That’s above the June 2022 low of -58 but in line with some of the lowest months of the Biden administration. Gallup said the May decline was caused by a fall in both the assessments of current conditions and the assessments of whether the economy is getting better or worse.
The Economist/YouGov polls tell the same story. The share of people saying the state of the economy is excellent or good has declined, while those saying it is fair or poor is rising. The share saying the trend of the economy is toward improvement has fallen to just 15 percent, while the share saying it is getting worse is up to 63 percent.
Even MAGA Sings the Blues
It’s tempting to write this all off as bias and partisanship. To be sure, Republicans and Trump voters tend to be underrepresented in these consumer surveys. And we saw Democrat views of the economy crash soon after Trump’s election, even though the economic fundamentals had barely changed at all.
But the recent declines are not just the products of mismeasurement or Trump Derangement Syndrome. There is a real movement in the public’s views on the economy, likely due to the sharp rise in oil and gasoline prices and the ongoing war with Iran.
This can be seen most easily by focusing in on Trump’s voters, registered Republicans, people who describe themselves as “MAGA,” and declared political conservatives. Prior to the Iran war, each of these categories—which obviously overlap a great deal—had very positive views on the direction of the economy, with those saying the economy was getting better vastly outnumbering those saying it was getting worse. That’s no longer the case, with one notable exception.
Let’s start with Republicans. Back in mid-February, the Economist/YouGov poll found that 58 percent of registered Republicans said the economy was getting better, and just 18 percent said it was getting worse. That gives us a net positive score of 33 percent. In the most recent poll, taken on May 15-18, the net positive has fallen to just two percent.
Among conservatives, the net positive score has gone from 29 percent in February to two percent in May. For Trump voters, the net positive has crashed from 32 percent to six percent.
MAGA supporters have held up better but are still far less optimistic as a group. Back in February, 62 percent said the economy was getting better, and 13 percent said it was getting worse, for a net positive of 49 percent. Now the “getting better” share is down to 49 percent, and the getting worse share has climbed to 16 percent. So, the net positive score has fallen to 33 percent.
You’ll notice that few MAGA Americans say the economy is getting worse. Instead, most of the migration has been from getting better to the view that the economy is staying “about the same,” which rose from 22 percent in February to 31 percent in May.
That’s not true of the other categories. Among Republicans, the getting-worse share climbed from 18 percent to 34 percent. Among conservatives, it went from 21 percent to 33 percent. Among Trump voters, from 19 percent to 30 percent.
The University of Michigan survey shows similar movement. The current conditions gauge for Republicans has fallen for three months in a row, going from 92.1 in February to 78.5 in May. The expectations gauge has declined for four straight months, from 102.9 in January to 88.6 percent in May. Gallup says the economic confidence index among Republicans is still positive at 22 but is at the lowest recorded during Trump’s second term.
The Red Wave and the Purple Ripple
There is a bit of a silver lining. Even though the numbers on the American right have declined, they remain above the Democrat numbers in the darkest days of Biden’s inflation catastrophe. Back in July of 2022, the Michigan current conditions index for Democrats had fallen to 68.0 and the expectations index to 64.6. The low point in Gallup’s ECI was a month earlier, when it hit -28 among Democrats. In the Economist/YouGov poll from mid-July 2022, just 15 percent of Democrats said the economy was getting better, and 44 percent said it was getting worse.
Still, the fact that things got even worse for Biden’s economy is a cold comfort—and a reminder that they could get worse still for Trump’s economy. In May of 2022, the Gallup ECI stood at -45, exactly where it stands today. By June, it fell to -58. In the mid-May Economist/YouGov poll, 14 percent of American adults said things were getting better—today it is 15 percent. By July 2022, this had fallen to nine percent.
It’s worth noting that despite dismal economic sentiment and declining optimism among Biden’s supporters, the “red wave” some Republican pundits predicted never materialized. Instead, we got a purple ripple. The GOP gained control of the House but only flipped nine seats, leaving it with a 222-213 majority. The Democrats held the Senate and actually added one seat to their majority.
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