Consumer Sentiment Increases as Election Looms

How the September 2024 University of Michigan Survey Signals Political and Economic Shifts

As the 2024 election approaches, the University of Michigan’s September report on consumer sentiment offers critical insight into the public’s economic outlook and its political implications. The latest data not only highlights key economic indicators but also sheds light on how consumer sentiment could play a pivotal role in voter behavior.

Sentiment on the Rise—But With Caveats

The University of Michigan’s Index of Consumer Sentiment climbed to 69.0 in September, marking a 1.6% month-over-month gain and a modest 1.8% year-over-year increase. It’s the highest sentiment reading since May 2024 and a significant recovery from its June 2022 low, which was nearly 40% lower than today’s level. However, while consumers are feeling better about the economy, underlying concerns remain.

The report’s Current Economic Conditions sub-index saw a stronger improvement, with a 2.6% increase from August. Yet compared to September 2023, sentiment around economic conditions is still down 11.5%. This lingering gap highlights a crucial disconnect: although consumers see near-term improvements, long-term uncertainty persists. The discrepancy suggests a public still wary of deeper structural issues in the economy, despite the recent gains.

The Political Undercurrents of Consumer Sentiment

With election day drawing closer, consumer sentiment is also increasingly influenced by political expectations. This expectation is fueling distinct partisan divides in economic outlooks. How voters view a potential Harris administration’s economic policies could polarize their economic behaviors, with confidence among Democratic voters offset by uncertainty among Republicans.

This divide is more than just political rhetoric—it has real-world consequences for consumer spending, investment behaviors, and broader economic confidence. As these partisan outlooks harden, they could shape market activity in the months leading up to the election.

Inflation Expectations and the Economic Leadership Question

One of the more encouraging aspects of the report is the continued easing of inflation concerns. Year-ahead inflation expectations fell to 2.7%, the lowest since December 2020, marking the fourth consecutive month of decline. Long-term inflation expectations rose slightly to 3.1% but remain well within a tolerable range when compared to pre-pandemic levels.

However, despite improving economic indicators, former President Donald Trump consistently outperforms Harris on questions of economic leadership. Polling shows Trump holds a clear edge when it comes to managing the economy, a factor that could prove decisive for undecided voters. This dynamic presents a complicated picture for forecasters: while consumers feel inflation is coming under control, many still perceive Trump as the stronger hand on the economy.

How These Findings Impact Election Forecasting Models

For analysts using forecasting models like Consensus or Modus, this blend of economic optimism and partisan polarization poses a challenge. On the one hand, improving consumer sentiment typically signals more favorable conditions for the incumbent or their party’s candidate. On the other hand, Trump’s polling advantage on economic issues introduces a wildcard. Voters may feel the economy is improving, but that doesn’t necessarily translate into confidence in Harris' ability to sustain it.

Forecasting models will need to carefully weigh these conflicting signals. Consensus, for instance, integrates both polling data and economic indicators. As a result, while the economic data alone might suggest an edge for Harris, Trump’s resilience in economic polling could lead to projections of a tighter race than those based solely on improving sentiment.

Strategic Implications for the Candidates

For Kamala Harris, the road to victory likely hinges on convincing voters that the improving economic data reflects her ability to manage the economy effectively. While sentiment has rebounded, she’ll need to translate these gains into political capital, particularly among the undecided voters who remain wary of her economic leadership.

For Trump, the strategy is clear: emphasize his perceived strength on economic issues. Even as inflation eases and consumer confidence rebounds, the public’s belief in Trump’s economic prowess gives him a potent advantage. If he can continue to cast doubt on Harris’ ability to handle the economy, he may retain the edge among voters for whom financial security is the top concern.

Incorporating these complex dynamics into forecasting models allows for a more nuanced view of how economic sentiment and political perceptions will collide in the final stretch of the election. Both the improving metrics and the persistent doubts around economic leadership will play a critical role in shaping the final outcome.