Tuesday, March 27, 2012

Consumer Confidence and the Presidential Election

The Lehmann Letter (SM)

Today the Conference Board announced that its index of consumer confidence “…now stands at 70.2 (1985=100), down from 71.6 in February.”


The chart places these readings in perspective. The index hit an all-time low in the recession and is erratically climbing out of the trough. We hope it continues northward and pulls the economy up with it. But what will that mean for the presidential election this fall?

Consumer Confidence
(Click on chart to enlarge)

(Recessions shaded)

A little history is in order. When Ronald Reagan first ran for the presidency in 1980 he asked the electorate, "Are you better off today than you were four years ago?" Take a look at the chart and compare 1976 with 1980. Candidate Reagan knew the answer was "No." Voters, unhappy with surging inflation and interest rates, turned the incumbent - President Jimmy Carter - out of office.

Four years later President Reagan once again asked, "Are you better off today than you were four years ago?" Take another look at the chart and you can see that consumer confidence rose from around 60 to about 100 from 1980 to 1984. President Reagan was returned to office in a landslide.

Consumer confidence bumped along at approximately 60 when President George H. W. Bush ran for reelection in 1992. Candidate Bill Clinton benefited from those low numbers and won the election. Then President Clinton, like Ronald Reagan before him, won re-election when consumer confidence rose from 60 in 1992 to 100 in 1996.

But consumer confidence is not always dispositive. It was at record highs of around 140 when Al Gore lost to George W. Bush in 2000. Although Vice-President Gore was not the incumbent, he probably hoped that consumer satisfaction would rub off on him. It did not.

What does all this mean for President Obama's re-election chances? Since it does not appear that consumer confidence will pop back up above 100 by November, the president must hope for consumer confidence's continued improvement. He will be pleased if it rises above 80 and he will be disappointed if it falls back below 60.

(To be fully informed visit http://www.beyourowneconomist.com/)

© 2012 Michael B. Lehmann

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