Democrats Now More Optimistic as Economic Expectations Shift

(Bloomberg) -- The election of Joe Biden as president is scrambling Americans’ outlook on the economy, with Democrats now more optimistic about their long-term prospects than Republicans for the first time since 2016.

The University of Michigan consumer confidence survey for November, released Wednesday, showed the index of consumer expectations rose to 71.2, the highest it’s been since the Obama administration. For Republicans, it has fallen to 68.6, the lowest since June 2016.

An index of less than 100 shows consumers more pessimistic than optimistic.

The partisan shift in economic outlooks follows a recent pattern of voters from different parties seeing the economy in different terms based on the results of the last presidential election. After Trump’s election in 2016, the partisan divide on the economy grew to its largest gap ever -- a 65-point divide between Democrats and Republicans.

But the effect this time may be more moderate, with the Covid-19 pandemic weighing on Democrats’ outlook for a post-Trump economy. The survey found that 59% of Democrats report that the pandemic has dramatically changed their lives, compared with just 36% of Republicans.

“I think that Covid has already muted the Democratic response and it probably will mute it further,” said Richard Curtin, director of the University of Michigan Survey. “I would expect that as infections and death rates increase over the next several months, we would see decreases in both Democrats and Republicans.”

The change in economic outlooks reflects growing partisanship in the ways Americans see their country. But it could also have real-world implications for how Democrats and Republicans make economic decisions.

Spending Shifts

In the aftermath of an election, for example, counties that voted for the new president see an increase in retail spending while those who voted for the losing candidate see a decrease, according to research by Yale political scientists Alan Gerber and Gregory Huber.

Still, the effects are more modest than the survey numbers would suggest.

“If you took these numbers on their face, you would expect Democrats to dramatically increase their consumption expecting the economy to do better, and Republicans to dramatically decrease their consumption because they expect the economy to do worse,” Huber said. “And if Republicans are really as bearish as the numbers suggest, you would see big changes in their investment portfolios.”

Instead, the Biden transition and promising vaccine news have sent stock prices to new highs. Major indexes retreated from their record highs Wednesday.

New presidential administrations can usher in policies that affect Democrats and Republicans differently. Biden, for example, has called for a transition to cleaner energy sources, higher taxes on top earners, and more infrastructure investment, particularly in urban areas.

President Donald Trump’s policies favored oil and gas exploration, provided large subsidies to farmers and cut taxes while limiting deductions in higher-taxed states that tend to be Democratic. There’s even some evidence that administrations steer existing grant programs toward areas that provide them with political support.

But consumers don’t wait for those new policies to take effect. Huber’s research suggests the change in purchasing decisions takes place immediately after the election, anticipating changes in the economy once the new administration takes office.

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