How Elections Affect Our Spending

Using numbers from the University of Michigan Survey of Consumers, economists observed that consumer attitudes have a partisan bias. During the first Trump administration, exceeding Democrats’ scores by 40 points, Republicans consistently said they were better off. However, after Joe Biden became president, the numbers switched. Then, the Democrats were 40 points above the Republicans.

From there, we can ask if those positive sentiments influence our spending.

Post Election Consumer Spending

Local Spending

In recent University of Florida research, economists confirmed the connection between spending and sentiment. They started with the University of Florida Consumer Attitude Survey. Looking at the consumer response from 1991 to 2019, they focused on four presidential elections and one for the governor. Survey questions asked if participants were considering major purchases like a car or a house. Next, they correlated the intent to purchase with the person’s political affiliation. Identifying when people’s party won a presidential election, they found that they expressed more optimism about the future and said they would spend more. At that point, the researchers concluded that changes in spending intentions clearly correlated with election results and party affiliations.

Then, taking the next step, they found municipalities that swung toward a certain political party. In those places, they confirmed their hypotheses with local and state sales tax data.

Statewide Spending

Again, researchers monitored the sentiment response to political affiliation and the subsequent spending. But this time they looked at whether the President’s party paralleled the affiliation of local congressmen. In their study, when national and local were the same, they accurately predicted an optimism that would ripple into more spending.

Below, we have sentiment tracking economic activity:

When establishing the spending connection through a survey, they asked the following kinds of questions:

“Looking ahead, which would you say is more likely — that in the country as a whole we’ll have continuous good times during the next 5 years or so, or that we will have periods of widespread unemployment or depression, or what?”

Looking for the correlation, evidence of spending from other sources came next.

Our Bottom Line: Economic Indicators

Policy makers look at three indicators to decide where the economy is going and where it is now. Related to the “leading indicators,” consumer sentiment helps us identify where the economy is now. But also, we need lagging indicators and coincident indicators:

1. The leading indicators suggest where the economy is going. They signal whether we will soon experience expansion or contraction. Building permits are leading indicators as are stock prices and average consumer expectations for business conditions.
2. A second series, the lagging indicators, are slow to respond to economic change. They are the indicators, for example, that remain in an expanding state for awhile when the economy begins to contract. One example of a lagging indicator is retail sales. It makes sense that it can take a while for sales to respond during the beginning of a recession, because disposable income and savings have not yet diminished considerably. Similarly, the unemployment rate is a lagging indicator.
3. The third series tells us where we are right now. Called coincident, the GDP is an indicator that lets us know the current state of the economy.

So, returning to where we began, and knowing about the connection between consumer sentiment, politics, and spending, can we say that Republicans will be spending more?

My sources and more: Curious about the impact of an election on consumer spending, we found several studies. Ernie Tedeschi from Yale’s Budget Lab described a widespread political sentiment impact while economists Hector Sandoval and Anita Walsh looked at Florida. In addition this 2018 study had a slightly different perspective.