What a difference an election makes.
Consumer sentiment in the United States showed a notable increase in November, rising by 1.3 points according to the University of Michigan’s monthly survey. This marks the continuation of a four-month upward trend in consumer confidence, reflecting growing optimism in the wake of the Republican and President-elect Donald Trump’s sweeping victory. The overall Index of Consumer Sentiment climbed to 71.8 from 70.5 in October, while the forward-looking Index of Consumer Expectations grew by 2.8 points, reaching 76.9 from 74.1.
Republicans, buoyed by Trump’s election, were particularly optimistic, with their economic expectations soaring. This shift marks a stark contrast to the political climate of recent years, where partisan views on the economy were sharply divided. The significant rise in the consumer expectations index among Republicans signals a newfound belief in the direction of the economy under Trump’s policies, particularly with the anticipation of tax cuts and deregulation. Meanwhile, for Democrats, the mood was less upbeat, with their sentiment on future economic conditions showing a decrease.
Joanne Hsu, Director of Surveys at the University of Michigan, pointed out that the increase in Republican optimism and the simultaneous decline in Democratic confidence mirrored the patterns seen in November 2020, though with the roles reversed. “The stability of national sentiment this month obscures discordant partisan patterns,” Hsu said. “In a mirror image of November 2020, the expectations index surged for Republicans and fell for Democrats this month, reflecting the incongruent views of how Trump’s policies will influence the economy.”
The rise in consumer sentiment comes despite the absence of significant changes in the economy itself between October and November. In fact, the stock market saw rallies both ahead of the election and shortly after the results, as betting markets indicated Trump was more likely to win. The market responded to the Republican sweep of both the White House and Congress with a short-term surge. However, recent days have seen some reversal in these gains as markets adjust to the potential for stronger economic growth leading to inflationary pressures. Moreover, Federal Reserve officials have downplayed expectations of significant interest rate cuts, adding to the uncertainty in the economic outlook.
Despite the optimism regarding future conditions, current economic conditions showed little change. According to Hsu, the resolution of the election had a minimal immediate impact on current economic conditions, with partisan sentiment diverging primarily on future projections. Hsu also warned of the substantial uncertainty that remains over how Trump’s economic policies will unfold, noting that consumers are likely to continue adjusting their views over the coming months.
Inflation expectations also showed a slight decline in November, dropping from 2.7% to 2.6% for the next 12 months. This marks the lowest inflation expectation recorded since December 2020, signalling some moderation in inflationary pressures over the short term. Nevertheless, the lingering uncertainty surrounding Trump’s economic agenda has led to a cautious optimism, with consumers unsure of how the new administration’s policies will play out in practice.
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As Trump prepares to take office, the details of his economic team remain unclear. Notably, Trump has yet to announce his selections for key economic positions such as Treasury Secretary and the head of the National Economic Council. The Wall Street Journal has reported that Trump has discussed Kevin Warsh, a former Federal Reserve governor, as a possible pick for Treasury Secretary. There is also speculation that Warsh could replace Jerome Powell as Fed Chairman when Powell’s term expires in 2026. Hedge fund billionaire and Trump adviser Scott Bessent is also rumoured to be under consideration for the role of NEC head, with plans to later take on the Treasury role.
Additionally, Howard Lutnick, a co-chair of Trump’s transition team, has been appointed as Commerce Secretary, where he will play a pivotal role in Trump’s planned import tariffs. These tariff policies, aimed at China and other nations, could have a significant impact on inflation and trade relations, potentially adding a layer of complexity to the economic landscape.
In conclusion, while consumer sentiment has improved in the wake of Trump’s victory, the true impact of his economic policies remains uncertain. With inflation expectations edging lower and partisan divisions continuing to shape perceptions, the coming months will likely see further adjustments as consumers respond to the evolving economic environment. Trump’s economic team and their policies will be key to shaping the direction of the U.S. economy in the years to come.
