I asked NYU Stern professor and economist about what he thinks of the American consumer polls, and here's what he had to say...
RUHL: These polls are tricky.
Expectations are important, particularly when it comes to consumer spending. A major factor in the sudden drop in consumer spending undoubtedly has to be the expectation that many consumers expect to be poorer in the future. This may be driven by the loss of value -- and with it equity -- in their homes, from uncertainty about their employment status, or from the declining value of investment portfolios. Consumer expectations tend to be good predictors of future output and spending growth. Economists usually view this as the "wisdom of the masses:" people are responding to the things they see, so if we ask enough people, we get a pretty good sense of what is happening in the economy.
It is harder to see, though, why the polls are reacting to Obama's presidency. Very little has changed, substantively, since Obama has taken office. The government continues to spend money in an attempt to 'fix' the economy -- which it had been doing before Obama came into office. What has changed? The way in which the money is spent is changing, but none of it has had a noticeable impact yet. It could be that people are looking at the plans that are being announced by the administration and feel that these are the 'right' plans and that the economy is on the road to recovery. It could also be that Obama is doing what pundits have claimed he is best at: inspiring hope.
ENDS
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