Consumer sentiment saw a surprising surge in August, marking the first increase in five months. Joanne Hsu, director of consumer surveys at the University of Michigan, joined TheStreet to discuss what drove this uptick and what it could mean for the months ahead.
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Full transcript of the video below:
CONWAY GITTENS: In August, consumer confidence rose for the first time in five months. What specific factors contributed to this rebound?
JOANNE HSU: First, these are election-related factors. This increase in consumer confidence was concentrated among Democrats, whose sentiment rose by about 6% compared to Republican sentiment, which actually fell. So, in reality, these are improved expectations, given the election-related developments, with Kamala Harris becoming the new Democratic Party candidate. It has improved expectations for Democrats, but not for Republicans.
CONWAY GITTENS: So do you view the rebound we saw in August as a genuine shift in consumer confidence or is it more of a temporary blip due to the political landscape?
JOANNE HSU: Well, we don't really know yet. The thing is, for the last several months, consumers have been telling us consistently that their views, their expectations about the future, the future of the economy, are going to depend entirely on who wins the election. And for now, Democrats are seeing a boost in confidence that comes from a change in their presidential candidate. But there are still a few more months before the election plays out. And during that time, people's expectations about who the new president will be are going to change. And I expect sentiment to change with that.
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CONWAY GITTENS: So when we look at historical data, is there any evidence that differences in sentiment between people of different parties actually predict who will win the presidential election?
JOANNE HSU: Generally speaking, when sentiment is on the rise, when it's closer to a cyclical peak, it tends to favor the party that's already in the White House. And when sentiment is on the decline or near a cyclical trough, it tends to favor the challenger. That said, those trends have correctly predicted who will win the popular vote. But that said, we've had some elections in recent cycles where the popular vote and the electoral vote didn't match up. So time will tell.
CONWAY GITTENS: Okay, let's put politics aside. When you look at the August increase in consumer confidence, what do you see when you break it down by income level? Is it a rising tide that lifts all boats?
JOANNE HSU: So what we've seen over the last two years is that sentiment hit an all-time low in June 2022, when inflation was peaking. And since then, sentiment has recovered quite a bit. However, when we look by income, what we see is that for those with higher incomes, their sentiment has increased by about 70% over the last two years. Meanwhile, for those at the bottom of the income distribution, it's only improved by about 11%. So there's a big difference in how people feel about the economy based on income. And I think this really comes down to how much high prices continue to affect the pocketbooks of Americans. For those with higher incomes, they have more wiggle room for those with lower incomes. It's particularly painful to have any income gains eroded by continued high prices.
CONWAY GITTENS: So we've been looking forward or backward, right? If we look at the August numbers, the preliminary numbers, do you see any signs in the data that consumer confidence is not only stabilizing, but is going to continue to improve in the months ahead?
JOANNE HSU: The overall trend over the past two years has been upward. June 22 was again the all-time low. And while consumer confidence has been up and down since then, the overall trend has been upward.
