What led to August’s consumer sentiment rebound

Joanne Hsu, Director of the Surveys of Consumers, joins TheStreet to discuss the bump in consumer sentiment.

Transcript

00:00So, consumer sentiment jumped for the first time in five months in August.

00:04What specific factors contributed to this rebound in consumer sentiment?

00:10Primarily, it's been election-related factors. This increase in consumer sentiment was

00:16concentrated among Democrats, whose sentiment increased about 6%.

00:21In contrast, where Republican sentiment actually fell. And so, you know, it's really some

00:28improved expectations, given the developments with the election, with Kamala Harris becoming

00:33the new nominee for the Democratic Party. It's improved expectations for Democrats,

00:41but not for Republicans.

00:44So, given that, does the bump we saw in August, do you see that as a genuine shift in consumer

00:52confidence, or is it more of a temporary blip due to the political landscape?

00:58Well, we don't really know yet. So, the thing is, for the past several months,

01:02consumers have been consistently telling us that their views, their expectations for the future,

01:07the future of the economy, are entirely going to be dependent on who wins the election.

01:12And so, as of now, you know, Democrats are seeing a surge of confidence that's coming

01:18from a change in their presidential nominee. But we still have a few more months before

01:23the election actually unfolds. And during that time, people's expectations over who's

01:27the new president is going to shift, and I expect sentiment to shift with that.

01:32So, when you look at the historical data, is there any evidence that the sentiment differences

01:38among people in different parties actually predicts who will win the presidential election?

01:44Overall speaking, when sentiment is on the upswing, when it's closer to a cyclical peak,

01:50it tends to favor the party that's already in the White House. And when sentiment is on the decline

01:57or near a cyclical trough, it tends to favor the challenger. That being said, you know,

02:04those trends have correctly predicted who wins the popular vote. But that being said,

02:09we've had a few elections in the past few cycles where the popular vote and the electoral vote

02:14did not line up. So, time will tell.

02:17All right. Let's move away from politics. When you take a look at that August jump in consumer

02:23sentiment, what do you see when you look at it by income levels? Is a rising tide lifting all boats?

02:33So, what we've seen over the last two years, you know, sentiment hit an all-time low in June of

02:382022 as inflation was hitting its peak. And since then, sentiment has recovered quite a bit.

02:45However, when we drill down by income, what we see is that for those who with higher incomes,

02:50their sentiment has surged about 70% over the last two years. Meanwhile, for those at the

02:56bottom of the incomes distribution, it's only improved about 11%. So, there is quite a bit

03:01of difference in how people feel about the economy by income. And I think this is really,

03:06and I think this is really, it really comes down to how much high prices are continuing to

03:14hurt the pocketbooks of Americans. For those with higher incomes, they have more of a buffer. For

03:20those with lower incomes, it is particularly painful for any income gains to be eroded away

03:25by continued high prices. So, we've been kind of forward,

03:29backward looking, right, looking at the August number, the preliminary number. Do you see signs

03:37in the data underneath the hood that suggests that consumer sentiment is not just stabilizing,

03:45but is going to head higher in months to come? The overall trend over the last two years has

03:52been upward. June 2022, again, was that all-time historic low. And while consumer sentiment has

03:58been, you know, it has been up and down since then, the overall trend has been upward.