- Published on Tuesday, 09 October 2012 20:25
- Written by Jason Ma, Investor's Business Daily
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The recent surge in economic optimism looked even more partisan in the latest IBD/TIPP Economic Optimism poll, with Republicans now suddenly turning more upbeat this month after Democrats had a similar spike last month. Both may have more to do with the looming presidential election than with the economy.
The overall Economic Optimism Index rose to a near-six-year high of 54 in October from 51.8 in September. That follows a 6.2-point jump last month. Other confidence polls showed big gains later that month.
Improvements in stock prices and the housing market have cheered up Americans. But the political nature of the latest optimism readings could explain why sentiment is up so much despite disappointing economic data.
Payrolls expanded by 114,000 jobs last month, well below what's needed to make up ground lost during the recession. GDP grew at an annual rate of just 1.3% in Q2. The jobless rate did tumble to 7.8% in September, but that reflect a surge of part-time jobs in the volatile household survey.
But the poll's six-month outlook subindex climbed to 59.1 from 55.2. But that was almost entirely due to a 13.6-point leap among Republicans. Most of the survey was conducted in the days after Mitt Romney's strong showing in the first presidential debate last week.
It mirrors September's outlook reading, which saw a 15.5-point surge among Democrats. That poll coincided with the Democratic National Convention and a bounce in President Obama's approval.
Independents, which did show a big outlook jump in September, actually showed a slim decline in October.
If optimism were truly rising about the economy and the economic outlook, one would expect President Obama to reap the benefits. But the IBD/TIPP Presidential Leadership Index was 49.8 in August, 49.0 in September and 49.4 in October, holding below the neutral 50 level. The job approval subindex dipped below 50 in October for the first time since January.
Partisan confidence readings are nothing new. Republicans were consistently more upbeat than Democrats and independents in 2008 when George W. Bush was president. By the time President Obama took office, Democrats suddenly became more optimistic.
Individual data points in individual months may be lackluster, but their cumulative effect could be producing outsize gains now, analysts say.
"There was no bell that rang that said housing is better," Kate Warne, investment strategist at Edward Jones, said last week.
The biggest drivers have been the stock market and a lack of exceptionally bad news, she added. The six-month sentiment gauge for investors rose for a fourth straight month in October to its best reading since January 2011. But that may reflect political hopes from "Democrat" and then-"GOP" investors rather than nonpartisan economic optimism.
Warne acknowledges political views may be having more of an impact than they historically have, given that more people are getting their news from sources with political leanings.
Buoyant optimism readings may be short-lived though, as the so-called fiscal cliff of steep tax hikes and spending cuts approaches without a deal in sight to moderate them.
"It will be a much bigger issue when the election is no longer dominating people's concerns," Warne predicted.
After the election, expect some Americans to suddenly become more upbeat about the economy while almost as many have grown despondent.
Sentiment has been much weaker for companies large and small. The Business Roundtable said in late September that its confidence index of big U.S. CEOs hit a three-year low, as the fiscal cliff and global economic problems weigh. On Tuesday, the National Federation of Independent Business said Tuesday that its optimism gauge edged down 0.1 point to 92.8 in September.