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Why Democrats Are Feeling Better About the Economy

Josh Boak|Fiscal Times
Monday, 1 Oct 2012 | 5:55 PM ET

Despite mixed economic signals and warnings about the country getting dropkicked into recession next year by the “fiscal cliff,” consumer confidence has climbed in parallel with President Obama’s surge in the polls over Mitt Romney.

President Barack Obama makes a brief appearance at the Democratic National Convention on September 5, 2012.
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President Barack Obama makes a brief appearance at the Democratic National Convention on September 5, 2012.

Analysis by the Gallup Organization suggests that both phenomena are being driven by politics instead of finances. The pollster found that Democrats started feeling better about their own prospects during the party’s convention last month. That enthusiasm about Obama’s reelection spilled over in a way that lifted broader measurements of economic sentiment.

“The convention certainly started the upward shift in confidence for Democrats—and that has continued at high levels and stayed up there,” Dennis Jacobe, Gallup’s chief economist, told The Fiscal Times. “Do people buy the idea that this is all taking time and the recovery is on its way? A lot of Democrats believe that.”

Unlike other confidence surveys by the Conference Board and the University of Michigan—both of which sharply increased in September amid muddled economic news—Gallup tracks consumer attitudes daily.

The pollster’s confidence index improved from -27 in August to -18 beginning on September 4, the first day of the Democratic National Convention in Charlotte. While the outlook remains negative, that reading is on par with the highest levels seen since Gallup launched its index in January, 2008.

Hopefulness spiked among Democrats and essentially held for the rest of September, as voters who lean Democratic swung from a negative reading of the economy to a positive one. The increase raised the index as a whole, although Republicans stayed just as gloomy as before.

Confidence Up, Spending Flat

The rosier view did not lead Democrats to open their wallets and spend more—evidence the sentiment possibly has more to do with electoral rather than economic momentum. Their daily spending stayed flat at $67 from August to September, as Republican consumers pulled back by 9 percent during the same period, according to Gallup. GOP supporters spent $80 a day in September, down from $88 the month before.

Obama simultaneously opened a strong lead against Romney in several battleground states. Quinnipiac University last week projected possible blow-out victories for him in Florida and Ohio, while surveys by Marist College showed slight edges in Nevada and North Carolina.

Not everyone sees the trends as closely entwined. Other factors such as an uptick in home values and a sustained—though jagged—climb in stock prices over the past year have received credit for the rising confidence. Sentiment may quickly plunge however, if several components of the economy take a dive.

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“Consumer confidence is a bit mysterious to say the least,” said Douglas Holtz-Eakin, former director of the Congressional Budget Office and economic adviser to Arizona Sen. John McCain’s 2008 presidential campaign. “The real question is: do you want to put a lot of faith in one month’s data? I wouldn’t. We’re hardly out of the woods.”

Real Threats to Economic Stability

Unemployment still hangs dangerously above 8 percent. Reports last week show that gross domestic product meandered along in the second quarter of this year at a slower pace than first estimated. Demand for “durable goods” like airplanes and kitchen appliances plummeted by 13.2 percent last month. Europe’s sovereign debt crisis remains a never-ending rollercoaster.

Washington insiders still wonder how Congress will navigate the $600 billion-plus fiscal cliff—a combo of expiring tax breaks and automatic spending cuts—that the Congressional Budget Office claims would suck the United States into an economic slump next year.

Even the confidence numbers released last week—despite their impressive gains—are relatively dismal. University of Michigan’s confidence index stands at 78.3, not too different from where it was when the recession began in late 2007. The Conference Board’s index is 70.3—and no president or incumbent party has returned to the Oval Office with a reading below 100.

Lawrence Yun, who as chief economist at the National Association of Realtors highlighted the relationship between the Conference Board’s index and the election last year, said confidence levels have been depressed by the nastiness of the political season.

“A reading on consumer confidence of near 70 is a barely passing grade—D+,” Yun said. “Negativity is there and holding back a better grade.”

The usual thinking is that economic data—such as the monthly jobs report out Friday—drives political support. But the trend observed by Gallup indicates that the animal spirits of the economy also dance to the music—however arrhythmic—of politics.

All of this hinders Romney’s path to the White House. Frustration with the stagnant recovery has been his major selling point. When more Americans envision a brighter future under Obama, his basic message—regardless of any gaffes—becomes less compelling.

His best chance at rallying the GOP base and dispelling the newfound Democratic confidence in the economy should be the first presidential debate at the University of Denver in Wednesday.

“It might be really important,” said Gallup’s Jacobe. “It will be interesting to see if you have a surge in Republican optimism and a decline for the Democrats if the debate turns out in Romney’s favor.”

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