Americans have been in an epic funk. They might finally be getting over it, which could be a tailwind for Democratic presidential nominee Kamala Harris in the home stretch of the 2024 election.
A variety of confidence measures have been depressed for years, as Americans first grappled with the COVID pandemic that arrived in 2020, then got hit with the highest inflation in 40 years. The University of Michigan sentiment survey has been near recessionary levels for most of the last four years, despite a solid recovery from COVID and record job growth during Joe Biden's presidency.
The gloom might be breaking. Consumer attitudes about current conditions ticked upward in the latest Michigan survey, but there was a more notable jump in the long-term economic outlook, which improved by 10.2% from July to August. Americans are growing more optimistic about the future.
Other data shows similar changes. The Gallup economic confidence index improved from July to August. The Conference Board’s confidence index also rose, with a corresponding gain in the future outlook.
These improvements are small, and Americans aren’t exactly cartwheeling through the streets. But there are a few reasons to think we may be at an inflection point, with more pronounced confidence gains on the way.
For one thing, these recent survey readings may be depressed by the stock market chaos of early August, when there was a jarring sell-off that rattled investors. Some of the survey participants responded in the midst of that turmoil. But that sell-off has since reversed, with the S&P 500 index close to the record highs it reached in July. Investor panic is gone.
The inflation shock is also wearing off. Inflation peaked at 9% in June 2022 and has since fallen back to 2.9%, which is near the normal zone. The cost of food and rent, however, has generally gone up and stayed up, with shoppers feeling the pinch. Inflation expectations are getting back to normal, however, with respondents in the Michigan survey saying they expect inflation of just 2.8% 12 months from now. That’s the lowest level in nearly four years, which is very good news.
Americans also seem to be getting the message about interest rates, which the Federal Reserve clearly intends to start cutting in just a couple of weeks. “The rise in consumer confidence in August reflects a further decline in inflation and pending interest rate cuts,” Oxford Economics reported in an Aug. 27 analysis. “[This] signals increased consumer spending ahead.”
Improving sentiment in the months before a presidential election is normally good news for an incumbent seeking reelection. The dynamics are obviously different this time around, given that Vice President Harris only became the Democratic nominee when President Biden dropped out in July. But there are signs that Harris is likely to benefit all the same.
The Michigan survey breaks down respondents by political party, including Independents, and the sharp improvement in the economic outlook from July to August correlates with Harris's replacement of Biden on the Democratic ticket. Democrats had the biggest gain in optimism from July to August, while Independents became modestly more optimistic. Republicans grew more pessimistic, but the gains among Dems and Independents more than offset that.
It’s not entirely logical that a change in presidential candidates would have such a big effect on how people view the economy. The US president has far less power over the economy than most people think, which is why recessions happen, inflation spikes, and bubbles form and burst. No president who was able to control such things would ever let them happen, if he or she had the power to intervene.
But the president, or future president, seems to stand as a proxy for how well-off people feel and how optimistic they are about their future opportunities. And Harris's ascendance seems to have jolted some Americans out of a chronic malaise.
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A recent Financial Times poll found that Americans in August rated Harris 7 points higher on her handling of the economy than they rated Biden just one month earlier, even though her policies are basically the same as Biden’s. That was mainly because they expected, or perhaps hoped, that she would develop different and better economic plans than Biden. A Reuters-Ipsos poll released three weeks later found Harris gaining similar ground on the economy, so it doesn’t seem to be a fluke.
The economic setup for Harris going into the final two months of the election is desirable. The national mood is improving. The inflation shock is fading. Interest rate cuts will gradually make big purchases more affordable. And growth seems likely to hold up at least through the end of the year.
“No signs of a recession,” Torsten Sløk, chief economist for Apollo Global Management, said in an Aug. 30 note to clients, adding that the Atlanta Fed’s estimate for third quarter real GDP growth is a steady 2.5%. “The incoming data remains strong.” (Disclosure: Yahoo Finance is owned by Apollo Global Management.)
There’s always something to gripe about. Lower-income families endure routine financial stress, and workers are starting to notice that jobs are becoming a bit more scarce. But inflation really is getting better and stuff is becoming more affordable. And more Americans seem to be lowering their guard and feeling more hopeful, at least for the next couple of months.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on X at @rickjnewman.
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