In behavioral economics, as well as in politics, economic perceptions are often more important than economic reality. In this regard, improving economic confidence is likely good news politically for President Barack Obama. On the other hand, the political forces driving these increases suggest such confidence measures should be highly discounted as an economic indicator right now.
The percentage of Democrats saying the U.S. economy is “getting better” averaged 74% over the first two weeks of October. This is up from 59% who held this view in August and 70% in September. At the same time, 14% of Republicans said the economy is getting better over the first two weeks of October. This is the same as the 14% of Republicans who said so in August and September. Overall, the surge in economic confidence among Democrats has played a significant role in increasing the overall percentage of Americans saying the economy is getting better to 43% during the first two weeks of October.
The difference in economic perceptions of the future direction of economy between Democrats and Republicans stands at 60 percentage points in October, compared with 45 points in August and 20 points in October 2011. While Democrats have tended to be more positive than Republicans about prospects for the economy during Obama’s first term as president, that difference is at record proportions in September and October of 2012.
What appears to be happening is that an increasing number of Democrats are buying into former President Bill Clinton’s framing of the economy -- this might be loosely paraphrased as: Given the state of the economy when he took office, no one could have done better with the economy during Obama’s term, that the economy is headed in the right direction, and to stay the course. On the other hand, few Republicans see the economy getting better, instead seemingly adhering to the Romney view that this is the worst economic recovery since the 1930s.
Independents’ Views Are Most Important Politically and Economically
While the large differences in economic expectations between Democrats and Republicans cast doubt on the usefulness of economic confidence data as an economic indicator at this point in an election year, that is not necessarily the case with independents. Presumably, the economic perceptions of independents are largely unbiased consumers’ views of both the future direction of the economy and who is winning the economic argument politically.
In this regard, the percentage of independents saying the economy is getting better increased to 39% in the first two weeks of October. These most recent numbers match the highest percentage for independents' economic confidence in 2012 and correcting for the summer swoon in confidence. While independents are nowhere near as optimistic about the future direction of the economy as Democrats, they are considerably more so than Republicans. While substantially less than half of independents say the economy is getting better, September through October increases in confidence among independents provide Obama with a much better economic setting than was the case during the summer.