Confidence Has Boomed. The Economy? Not Really.

In Economy, The Upshot On

When confidence rises or falls suddenly, the move will predict a shift in economic performance only if something happens to the fundamentals to justify it. The early warning that confidence surveys offered on the 2008 recession was useful, but the downturn happened not because consumer confidence fell, but because the underlying forces around housing and credit that it reflected were so damaging. The post-Katrina drop wasn’t matched by any major deterioration in economic fundamentals, so it was a mere historical blip.

One clue as to which precedent applies here is in the partisan breakdown in sentiment surveys. Instead of an across-the-board improvement in confidence, it appears that Republicans became sharply more confident while Democrats became somewhat less so. That implies that the postelection confidence surge was about conservatives feeling more giddy about their side winning than about the broad mass of Americans picking up on improving economic fundamentals not yet evident in the data.

The Trump administration’s promises of major tax cuts, infrastructure spending and pro-growth regulatory policy have been slow in coming, but could conceivably change that over time.

But history shows that confidence alone won’t cut it.

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