Consumer sentiment saw a surprising jump in August, marking the first increase in five months.
Joanne Hsu, director of the surveys of consumers at the University of Michigan, joined TheStreet to discuss how the 2024 presidential election is already shaping how average Americans feel about the economy and what to watch next.
Related: Kamala Harris sees stars align against Donald Trump
Full Video Transcript Below:
CONWAY GITTENS: So consumer sentiment jumped for the first time in five months in August. What specific factors contributed to this rebound in consumer sentiment?
JOANNE HSU: Primarily, it's been an election related factors. This increase in consumer sentiment was concentrated among Democrats, who sentiment increased about 6% in contrast for Republican sentiment actually fell. And so it's really some improved expectations given the developments with the election, with Kamala Harris becoming the new nominee for the Democratic party. It's improved expectations for Democrats, but not for Republicans.
CONWAY GITTENS: So given that, does the bump we saw in August, do you see that as a genuine shift in consumer confidence or is it more of a temporary blip due to the political landscape?
JOANNE HSU: Well, we don't really know yet. So the thing is, for the past several months, consumers have been consistently telling us that their views, their expectations for the future, the future of the economy are entirely going to be dependent on who wins the election. And so as of now, Democrats are seeing a surge of confidence that's coming from a change in their presidential nominee. But we still have a few more months before the election actually unfolds. And during that time, people's expectations over who's the new president is going to shift. And I expect sentiment to shift with that.
CONWAY GITTENS: So when you look at the historical data, is there any evidence that the sentiment differences among people in different parties actually predicts who will win the presidential election?
JOANNE HSU: Overall speaking, when sentiment is on the upswing, when it's closer to a cyclical peak, it tends to favor the party that's already in the White House. And when sentiment is on the decline or near a cyclical trough, it tends to it tends to favor the challenger. That being said, those trends have correctly predicted who wins the popular vote. But that being said, we've had a few elections in the past few cycles where the popular vote and the electoral vote did not line up. So time will tell.
CONWAY GITTENS: All right. Let's move away from politics. When you take a look at that August jump in consumer sentiment, what do you see when you look at it by income levels. Is a rising tide lifting all boats?
JOANNE HSU: So what we've seen over the last two years. Sentiment hit an all time low in June of 2022 as inflation was hitting its peak. And since then, sentiment has recovered quite a bit. However, when we drill down by income, what we see is that for in those with higher incomes, their sentiment has surged about 70% over the last two years. Meanwhile, for those at the bottom of the income distribution, it's only improved about 11% So there is quite a bit of difference in how people feel about the economy by income. And I think this is it really comes down to how much high prices are continuing to hurt the pocketbooks of Americans. For those with higher incomes, they have more of a buffer for those with lower incomes. It is particularly painful for any income gains to be eroded away by continued high prices.
CONWAY GITTENS: So we've been kind of forward or backward looking, right. Looking at the August number, the preliminary number. Do you see signs in the data underneath the hood that suggests that consumer sentiment is not just stabilizing, but is going to head higher in months to come?
JOANNE HSU: The overall trend over the last two years has been upward. June 22 again. Was that all time, historic low. And while consumer sentiment has been it has been up and down since then, the overall trend has been upward.
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