Research >> Economics
University of Michigan Consumer Confidence Preliminary November Results fell to 66.8
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Consumer sentiment fell in early November to its lowest level in a decade due to an escalating inflation rate and the growing belief among consumers that no effective policies have yet been developed to reduce the damage from surging inflation. One-in-four consumers cited inflationary reductions in their living standards in November, with lower income and older consumers voicing the greatest impact. Nominal income gains were widely reported but when asked about inflation-adjusted gains, half of all families anticipated reduced real incomes next year. Rising prices for homes, vehicles, and durables were reported more frequently than any other time in more than half a century. The reactions of consumers to surging inflation should be no surprise, as it has been reported during the past several months. The description that inflation would be "transient" has the undertone that consumers could "grin and bear it" as economic policies counted on a quick and automatic self-correction to supply and labor shortages. Instead, the pandemic caused economic dislocation unlike any prior recession, and has been intertwined with partisan interpretations of economic developments.
The moods of consumers play a central role in how information is processed (see my book Consumer Expectations). Positive moods promote more casual and less detailed information processing, and negative moods promote more formal and deliberate information processing, especially of potentially negative developments. Partisans aligned with the President's party have adopted very positive moods, and those in the opposing camp very negative moods. As a result, partisan supporters of one or the other presidents either mentioned or ignored rising home and stock values, inflation and income growth rates, or mentioned or ignored employment or unemployment rates, and so forth. The partisan differences in perceptions were not minor, but were large and equal in size (see the table). They were larger than differences across income, age, and education; moreover, those partisan differences nearly equaled the entire span between cyclical peaks and troughs. The issues underlying the stark partisan divisions are based on stark differences in economic policies. The stylized difference is that one side favors maximizing economic growth and efficiency, the other side on maximizing distributional equity and fairness. Such legislative challenges are won or lost by extreme partisan support drawn from both sides of the aisle. Such extremes, however, make achieving their policy goals much more important than providing effective counter measures to ongoing economic hardships.
Posted: November 12, 2021 Friday 10:00 AM