Election Blues For Red Consumers

Consumer sentiment unexpectedly declined in the preliminary read on the University of Michigan survey for November, although I’m not sure “unexpectedly” is the right word.

The headline gauge printed a disappointing 77. That was well below consensus, which was looking for 82. 77 matched the most pessimistic guess estimate from more than four dozen economists.

It’s starting to feel like the US will soon be mired in a two-speed economic scenario, where manufacturing continues to hold up, even as services sector activity moderates and sentiment swoons. Although the services economy was still doing ok through October, new lockdowns, restrictions, and the curtailment of hours for bars and restaurants are sure to take their toll eventually.

As you might imagine, Republicans weren’t amused with the election outcome. “Interviews conducted following the election recorded a substantial negative shift in the Expectations Index among Republicans,” Richard Curtin, chief economist for the Michigan survey said Friday.

For Democrats, any boost expectations may have received from a Joe Biden victory were muted by the severity of the worsening public health crisis, Curtin said, adding that “Republicans now voice the least favorable economic expectations since Trump took office, and Democrats have voiced more positive expectations.”

The partisan divide could widen in the next few months, Curtin remarked, but noted that “gains will be limited until a potential vaccine is approved and widely distributed.”

Also notable is the color around household incomes, which declined on net in early November for the first time in nearly seven years. The biggest net declines were (not surprisingly) reported by lower-income households. The elderly also suffered. “Job and income declines due to the COVID resurgence will diminish holiday purchases among lower-income households, especially since no extension in federal jobless benefits and other income supplements are expected before year-end,” the survey said.

That’s an important consideration and again underscores the inherent flaw in the argument that higher stock prices will bolster the economy via consumer spending thanks to the “wealth effect.”

I cannot emphasize the point enough: Lower- and middle-income Americans simply don’t own very many stocks, especially on a relative basis. That helps to explain why the figure (below) looks like it does.

As I always put, that’s a “chart crime,” but it’s of the misdemeanor variety, and it’s a useful visual aide.

If the expectation is that elevated equities will translate to a robust holiday shopping season, I would gently suggest considering a less sanguine view. Especially when you account for the distinct possibility that the unchecked spread of the virus in the US could lead to fewer in-person holiday gatherings, and thus a convenient excuse for people with no money to eschew the buying of gifts.

And when it comes to stimulus, well, you can direct your questions to Mitch McConnell now. The White House reportedly isn’t taking any calls.