- Politics is blinding some people to the strong U.S. economy.
- Manufacturing is starting to show signs of bottoming out.
- The economy could be going from deceleration to acceleration.
In our polarized political environment, people’s perceptions of the economy are increasingly shaped by who is in power. This reflex is understandable. The chart below from Pew Research shows how Republicans’ economic assessment surges under Republican presidents, and Democrats’ perceptions remain muted even under today’s bull market conditions.
Partisanship heavily impacts how people see the economy.| Source: Pew Research
Evidence Over Partisanship
This flipped under President Obama. Republicans’ enthusiasm for the economy trended higher at a slower rate than Democrats. This was despite an eight-year bull market in asset prices and steady improvements in the labor market. Views about the economy translate into people’s decisions to start businesses, make major purchases, and enter or leave the workforce. For businesses, it translates into hiring and investment decisions.
Ultimately, this is a mistake. There have been brutal bear markets and spectacular bull markets under all combinations of executive and legislative leadership. While it’s inconvenient for political narratives, economic outcomes are shaped by much larger forces than politics. Demographics, the business cycle, technological trends and global economic conditions all play a role. Politics certainly has an impact in shaping these forces in the long-term.
But in the short-term, the impact is primarily psychological. For example, despite vast differences in opinions about how government should work, the Trump and Obama economies are quite similar. Nominal GDP has largely fluctuated between 2% and 4% under both presidents with a brief pop to 5% following Trump’s tax cuts.