In warning sign for Trump, independents lose confidence in economy

Gregory Korte and Ryan Haar
Bloomberg News

Republicans and independents are losing faith in the economy at the steepest rates of Donald Trump’s presidency, signaling more trouble for his efforts to make economic growth a centerpiece of his reelection campaign.

The University of Michigan Consumer Sentiment Index fell in August to its second-lowest level since just before the 2016 election. But a deeper look of the numbers by party affiliation shows warning signs for Trump, the survey’s director says.

A board above the floor of the New York Stock Exchange shows an intraday number for the Dow Jones industrial average, Monday, Aug. 5, 2019.

Measures of consumer sentiment by political party showed that confidence for Republicans fell to the lowest of Trump’s term. Readings for independents dropped while those for Democrats improved.

“What I’d keep my eye on is the independents because whoever wins the majority of independents will win the presidency,” Richard Curtin, director of the Michigan survey, said on a conference call with reporters.

Voters historically had higher consumer confidence when a president of their party is in the White House. Independents saw a big boost in optimism after Trump’s election but their confidence is now at the lowest level of his presidency.

On Thursday, Trump downplayed economic indicators suggesting that a recession is becoming more likely, citing earnings by retailers. “The economy is incredible. The consumer – probably above all else, the consumer is doing incredibly,” he told reporters before leaving for a campaign rally in New Hampshire.

The consumer sentiment index slumped to 92.1 from July’s 98.4, missing all forecasts in Bloomberg’s survey of economists. The gauge of current conditions decreased to 107.4 while the expectations index dropped to 82.3, bringing both readings to the lowest levels since early this year.

A weakening in that pillar of support, if sustained over time, has the potential of suppressing economic growth or worse, bringing an end to the record economic expansion.

Curtin said announcements of new tariffs in a trade war with China are weighing on purchasing decisions as consumers expected inflation to eat into the buying power of their paychecks.

Consumers “strongly reacted” to the proposed increases in tariffs on Chinese goods, a subject that was spontaneously cited by 33% of those surveyed, near the recent peak of 37%, according to the report. Americans also concluded, following the Federal Reserve’s first interest-rate cut in a decade, that they may need to be more cautious about spending in anticipation of a potential recession, the report said.

The July 31-Aug. 14 survey period corresponded with an especially volatile period: the Fed rate cut, Trump raised tariffs on consumer goods from China then delayed some, and signs of global malaise multiplied. Markets convulsed in those two weeks. U.S. stocks posted their two steepest drops of the year while yields on 30- year Treasury bonds fell to record low and 10-year yields dipped below the two-year in a harbinger of recession in the next 18 months.

Curtin said some of those surveyed mentioned recent stock-market declines but not enough to significantly affect the overall result. “It’s likely that this will have a bigger impact on how people will judge their household wealth going forward, and I would anticipate this to be a drag,” he said.