The folks at the University of Michigan who do the monthly Survey of Consumer Sentiment have a whole bunch of interesting stuff they released yesterday. First up, as soon as Donald Trump was elected uncertainty over inflation surged upward:
At the same time, as talk of tariffs ramped up, a lot of people decided it was a good time to buy imported major appliances while the buying was good:
And just for laughs, here's how expectations about the economy changed among partisans:
And the Index of Consumer Sentiments itself? It was down 1.1% from last month and down 7.3% from a year ago. Good times.
So peoples’ impressions/feelings do not matter when it comes to inflation, but they do matter here?
There's a critical difference between impressions, which involve perception of the present situation, and expectations, which involve attempts to predict the future.
Impressions may be factually correct, or not. Expectations cannot be factually correct or incorrect, they can only be more or less probable. When the future catches up with expectations we can then say whether or not predictions were correct.
The issue with inflation has been false impressions rather than questionable predictions. Kevin's charts are about expectations rather than impressions.
Inflation expectations are why mortgage rates have stayed high, despite the few interest rate cuts the Feds made, and the overall drop in inflation this year.
One of the things about the opinions of the general public is that they often do not match their actual behavior. Despite saying that the economy was terrible for years, Republicans weren't spending differently than Democrats during the Biden years. They kept buying stuff like everyone else. There was no crash in enormous pickup truck sales. Nashville and Branson, MO didn't have tourism collapses. We didn't see unusual home selling/buying behavior concentrated in Red areas. They acted like everyone else.
The people who are buying up cars and appliances right now not only think that tariff-induced inflation is coming, they are actually acting like it. That is likely a short-term phenomenon, since it's mostly people making planned purchases a bit earlier than they originally wanted. If you were going to buy soon anyway, you might as well hedge your bets. It's not like anyone expects prices to drop in the first half of 2025.
The big question going forward is how many people will behave as if their partisan economic opinions are real. Will Democrats dramatically reduce their spending, as people usually do when they think a recession is near? Will Republicans go on a spending spree instead?
“That is likely a short-term phenomenon, since it's mostly people making planned purchases a bit earlier than they originally wanted.”
This is true but still bad overall for the economy in itself. If the nation was going to buy 2m washing machines between Nov 2024-Nov 2025 and another 2m every year for the next 4 years, but ends up buying 6m in Nov 2024-Jan 2025 and then just 0.1m between Jan 2025-Nov 2025 and fewer than 1m for each year afterwards, that has very different effects on individual retailers than if the 2m was evenly spread throughout the year. Eventually the former will lead to short term layoffs (if the retailers think demand will bounce back eventually) or long term layoffs (if the retailers go out of business because they need a minimum amount of revenue every month to stay operational). Neither is great compared to the world in which purchases were spread evenly throughout the year for the next 5+ year lifespan of a washing machine.
Probably my numbers are off by an order of 10-20x magnitude but the idea still remains true: pushing future purchases forward in time cannabalizes future retail activity. Without activity, retailers will do layoffs - why keep as many people on payroll if they’re standing around doing little?
That'll just be fuel on the fire. The first wave of deportations is going to drive the cost of food way up, including the right's favorite: bacon. (And plenty of legal migrants will be frightened out of the country.) But expensive bacon should be a relief, I guess, since the War on Denmark is going to wreak havoc on the price of Ozempic. I'm sure the price of eggs will stabilize once Donny does away with the USDA and its pesky program of testing birds for avian flu.
Maybe someone knows, but I suspect that stricter regulation of chicken/egg businesses could cut down on serial epidemics causing them to kill millions of hens all the time. What's going on in Europe with hens/eggs?
Well Biden did such a good job with the economy that the Fed will likely not cut interest rates any time soon. This has resulted in the stock market declining.
Clearly Biden did this to sabotage Trump.
...and Trump will simply scream and yell and pitch a fit and threaten to deport Jerome Powell and his entire extended family or something until they relent and lower rates. If Trump has taught us anything, it's that the POTUS throwing a goddamn toddler tantrum (and getting his very online MAGA cultists all lathered up over something) often gets results because people are scared and/or exasperated by it, so they just go along.
Long term interest rates were going up even when the Fed was easing, prompting speculation of a "moron premium."
As a partisan Democrat, my expectation is that if Trump and his crew of dead-eyed granny-starvers are stymied in most of their economic plans, we'll probably muddle through without much trouble. If he gets his tariffs or starts actually deporting undocumented people (or getting them to leave) in large numbers, things are going to go south pretty quick. People have no idea how many things in their daily lives, from child- and eldercare and construction to meat and vegetable harvesting and processing rely on people who aren't here legally.
We can fix that with (1) using prison labor, (2) making indentured servitude* legal again and (3) making sure wide swaths of American youth are undereducated and desperate for any job they can find. I bet most Trump voters would be totally ok with some or all of the above - they definitely are the “as long as it doesn’t personally affect me, I don’t care” crowd.
*just tweak the work visa system to more strongly bind applicants to their employers
Well, I can see Democrats are not going to be disappointed. Excuse me, AS disppointed.
"And the Index of Consumer Sentiments itself? It was down 1.1% from last month and down 7.3% from a year ago."
Presumably, those surveyed for the index of consumer sentiments vote. Did they knowingly vote for a worse economy?
I did my small part by moving up the purchase of a Made In Mexico Fender guitar last week, before Mango Mussolini's coronation, and they run out of inventory.
I guess businesses will have to go kiss his ring (ass) in order to get exemptions from tariffs.
When did Fender start making guitars in Mexico? I guess some time around: https://en.wikipedia.org/wiki/Fender_(company)#After_CBS
Yeah, a bunch of us ran out to get major items that were likely to be hit either by tariffs or elimination of federal rebates. In my case, it was a new plug-in Rav4. Luckily, they didn't have what I wanted in stock. Why luckily? Because demand is so high that the dealers are charging $10,000 OVER MSRP. (MSRP on a loaded plug-in Rav4 is $53,000 so $10k is a 20% premium.) Thanks, Obama!
There must be a chart out there plotting partisan consumer expectations with economic performance, right? Would be nice to know if all of those salt-of-the-earth capitalists that make up the Republican party are better at predictions than me and my coddled and effete liberal friends.
To be fair, my view on the outlook of the economy has weakened after Trump's election. (I am the Director of Finance for a fairly small multi-billion dollar bank and it is my job to think about the course of interest rates and the likelihood of recessions).
The idea that we will have significant tariffs, and other countries will retaliate increases the chances that inflation will rise and the economy will weaken.
Yes, I am a Democrat, but I try to be a realist. The first three years under Trump 45 were good years. It is hard to keep a recovery going. Trump deserved credit.
The future is probabilities. Maybe Trump's policies will be good for the country. I doubt it, but I try to keep my eyes open and see clearly.
As Dennis Miller says: That's just my opinion, I could be wrong.