A Week After the Elections, U.S. Consumer Sentiment Continues To Move Up

Consumer sentiment improved markedly following the elections in the United States. Looking back to January 2018, last week’s increase was not the highest. In fact, there were sustained periods of significant consumer sentiment increases, especially during the first quarter of 2021. However, the recent data's timeliness and its demographic breakdowns suggest that last week’s increase in the index figures could be partially attributed to the views on the election results.

Last summer, there was much written about the gap between how well the economy was doing by broad measures such as consumer spending, GDP growth, lower inflation, a resilient (yet weakening) labor force and how the U.S. consumer has been feeling about the economy (popularly described as vibecession.)  For the feelings aspect, many economists pointed to the Index of Consumer Sentiment or the Conference Board’s Consumer Confidence. Despite the differences in questions, both measures are used as a gauge for consumers' feelings about the economy. It is clear in both indexes that consumer sentiment has not returned back to the pre-pandemic levels despite the economic recovery.

Although the U.S. economy has avoided the anticipated recession while transitioning away from a hot labor market and high inflation, many (including our team) have pondered about the reasons behind the vibecession: Why is the U.S. consumer feeling so down about the economy while the economy has been (generally and at an aggregate level) performing better than the expectations? Results from our surveys suggest that price levels and understanding of inflation play a large role. However, we also noted: the devil’s in the details.  

Since July, the ICS has been broadly moving up; bringing up the question: is the vibecession coming to an end? Looking at Morning Consult’s data, while we wrote about the increase in sentiment, we have also highlighted that in the post-pandemic period, but especially in 2024, disparities between the haves and have nots continued to widen and define the economy. Therefore, while the topline index may be showing a positive momentum, the detailed data at times pointed to a different reality for different demographics. This has been especially apparent for higher-income households who continue to drive strength in consumer spending, while high interest rates are affecting certain demographic groups such as lower income households and younger generations more disproportionately.

ICS observations pre and post elections

Feelings about the economy: is it now or later?

Upward momentum in the ICS has been driven by expectations for business conditions in the next 12 months and 5 years. The index for expectations for personal finances (a year from now) has also been increasing but the incline is not as steep as the outlook for business conditions. 

On the contrary, the current conditions for purchases have been mostly flat (with the exception of a slight increase in the last two months) and how consumers view their current personal finances has been declining and then flat-lining in the last six months.

In the aftermath of the election, all five indexes increased. Even if the election results provided an immediate boost to sentiment, that uplift mostly came from expectations around the future, rather than the current conditions. The laggard in terms of magnitude: personal finances current conditions (as a reminder, this index quantifies the question: Would you say that you (and your family) are better off or worse off financially than you were a year ago?). The second slowest increase was for the current buying conditions index.

Looking at the data, there are several patterns in the pre-election period. By income levels, similar to the pre-pandemic period, there is a large gap between the higher income and lower income population. Particularly after 2022, the index level gap between middle-income and low-income households narrowed. The gap in sentiment between these groups was much higher pre-2020; in fact the index levels of the middle income group was closer to the higher income group versus the lower income group. We had highlighted in our analysis that the middle income cohort has been behaving (in economic terms) more like lower income groups.

Despite this–what seems to be a post pandemic structural shift–all income groups registered higher sentiment in the lead up to and after the elections. In all three income groups, the divergence between now and later continues to exist in the weeks’ worth of data.

Age cuts of the data display that all age groups (including most of adult Gen-Zers, albeit at a slower rate) had increasing levels of consumer sentiment in the run up to the elections. In the week after the elections, the upward trend continued on.

The week after the elections, where the shifts in sentiment are very clear: ethnicity, community type and political ideology. Two ethnic groups in Morning Consult’s data had consumer sentiment reaching (and one of them surpassing) pre-pandemic levels, Black and Hispanic. In post election, while we note a sharp uptick in White and Hispanic survey takers, Black respondents’ sentiment nose dived. By political ideology, the expected shift in sentiment between Democrats and Republicans is still taking place a week after the elections (reminder that the data is a 5-day moving average) but the movement in the opposite direction is large and already notable. Finally, we observe the spike among rural and to an extent suburban populations. While sentiment in urban areas also increased but not at the same extent as the other two groups. Demographic groups that reported declining or muted sentiment were more likely to have voted for the Democratic candidate Kamala Harris, and thereby more likely to be more pessimistic about the future of the economy.

So what?

Higher consumer sentiment is generally beneficial for the economy. This confidence can drive increased spending and investment, fueling economic growth. Although not a single determinant by any means, consumer sentiment can provide clues about current and future consumer spending, as shown here in Chicago Fed’s Advance Retail Trade Index (CARTS). 

The value of the daily tracking for consumer sentiment shines when there are big events, such as elections. This indicator becomes more useful in gauging not only how the population at large feels about the economy but also how different cohorts evaluate the economy before and after a particular event. 

A week after the elections, the average U.S. consumer feels more optimistic about the economy at large, although there are clear differences among key groups. The swings in these demographic groups are in line with their choice for the president. That said, it would not be correct to extrapolate off of one week’s worth of data. Demographic data can provide more context on how that cohort is feeling now, but at a topline level, continuation of the previous upward trend is necessary to declare that U.S. consumers are feeling good about the economy and perhaps we are heading out of a vibecession.

Morning Consult Intelligence customers can access the platform and find the data for detailed demographics here.  Morning Consult Pro clients can access the topline consumer sentiment data here. If you are interested in learning more about our consumer sentiment data, reach out to your Morning Consult contact or email [email protected].