In a new study led by Hector Sandoval at the University of Florida’s Bureau of Economic and Business Research, it was discovered that national elections, particularly those marking a transition of political power, significantly influence consumer sentiment and spending intentions more than previously understood. This research provides novel insights into the relationship between political events and economic behavior among consumers in Florida.
Economic researchers have long grappled with understanding the dynamic between consumer sentiment—a reflection of public confidence in the economy—and actual spending behavior. Despite the extensive data available, conclusive evidence tying these two factors together has been elusive. Sandoval’s team conducted this study to bridge this gap, inspired by a similar investigation in Australia in 2018.
“Consumer sentiment surveys have existed for nearly 75 years, yet the causal relationship between sentiment and consumption is mixed and scarce,” Sandoval said.
For their study, Sandoval and his co-author, Anita N. Walsh, analyzed data from the University of Florida Consumer Attitude Survey, a rich source of monthly insights into the minds of consumers spanning from 1991 to 2019. This period encapsulates four presidential elections and one gubernatorial election, pivotal moments that potentially influenced consumer attitudes and behaviors due to shifts in political power.
These surveys ask a range of questions, with the primary inquiry being: “Do you think now is a good or a bad time for people to buy major household items?” Following this central query, there are six additional questions probing specific major purchases, like cars, apparel, housing, etc.
The researchers found that consumers tend to exhibit more optimistic or pessimistic views about the economy based on whether the political party they affiliate with is in power. This sentiment shift is particularly stark immediately following presidential elections that result in a change of the governing party. For instance, survey respondents affiliated with the incoming party showed markedly increased optimism about future economic conditions.
Furthermore, the study establishes a significant causal link between shifts in consumer sentiment and spending intentions. Leveraging an instrumental variable approach to isolate the effect of sentiment from other economic variables, the findings illustrate that heightened optimism or pessimism post-election directly affects consumers’ willingness to engage in significant spending, such as purchasing major household items, automobiles, and other durable goods.
Notably, the impact of consumer sentiment on spending intentions was robust across different presidential elections, suggesting a recurring pattern tied to political cycles. The study’s results indicate that this effect is not only statistically significant but also sizable, meaning that the shifts in consumer sentiment following elections have a meaningful impact on potential spending activities.
The researchers also explored the relationship between spending intentions and actual spending, employing state- and county-level sales tax data as proxies for consumer expenditures. Their analysis provides evidence that spending intentions, as influenced by political partisanship and subsequent shifts in sentiment, are indicative of actual spending behavior.
For example, counties with a higher proportion of voters affiliated with the party winning the presidency in 2016 saw increased spending on durable goods, underscoring the real-world implications of sentiment-driven spending intentions.
However, this study is not without its limitations. The reliance on survey data, while rich in detail, introduces potential biases based on respondents’ willingness to disclose true feelings or intentions. Moreover, the focus on Florida, though reflective of a diverse and politically pivotal state, may not fully encapsulate the broader national sentiment. Recognizing these constraints, the researchers advocate for further studies, particularly at a national level, to validate and expand upon their findings.
“It would be interesting to observe whether similar patterns emerge in other states, especially concerning the impact of gubernatorial elections on sentiment,” Sandoval said.
The study, “Sentiments and spending intentions: Evidence from Florida,” was published March 20, 2024 in the journal Economic Inquiry.