A new report from the University of Michigan shows that people’s views on the economy are sharply divided based on their political beliefs. This divide is causing a lot of uncertainty in the economy.

The study looked at how these differences have changed since the COVID pandemic and as we approach the upcoming elections. Interestingly, the report found that the gap between people from different political parties is even wider than gaps based on income, age, and education.

Interpreting the data

“This suggests that the way consumers interpret ongoing economic trends continues to be colored by partisan perspectives,” the researchers explain.

“The size of the partisan divide in expectations has completely dominated rational assessments of ongoing economic trends. This situation is likely to encourage poor decisions by consumers and policymakers alike. While there have always been partisan differences in preferred policies, the overwhelming size and persistence of the partisan gap has generated substantial economic uncertainty.”

Partisan differences in consumer attitudes and expectations are well documented and date back to at least the Reagan administration. Consumers affiliated with the political party in the White House tend to have higher levels of sentiment and more favorable expectations than those whose party is not.

The researchers found:

• Despite large partisan differences in consumer sentiment, Independents continue to be consistently in the middle and hold views that reflect national averages. This hold held true when Republican sentiment surged and Democrat sentiment plunged between November 2016 and January 2017, and vice versa in 2020-2021.
• Between presidential transitions, trends in sentiment and expectations for each political group continue to move in a parallel fashion over time. The fact that all three groups tend to co-move indicates that, despite partisan differences in views and attitudes, the three groups still have much in common in their interpretation of economic trends, and inflection points in sentiment for each political group tend to occur together.
• The partisan gap in sentiment grew substantially during the Trump administration and narrowed slightly during the Biden administration, but still remains large in magnitude. During the Trump administration, the partisan gap was the largest the index has ever recorded. The partisan gap has shrunk during Biden’s term but is still almost double the size of the gap during the Obama and Bush administrations.
• The partisan gap in the overall index of economic news heard eased during the Biden administration. However, the net favorability of news on one of the most prominent economic issues in years—inflation—widened as the inflationary episode progressed.
• Partisan differences in inflation expectations also grew during the post-pandemic inflationary episode. Republicans’ short-run inflation expectations deteriorated more strongly than for Democrats in 2021 and 2022. Conversely, Democrats’ year-ahead expectations recovered more sharply than those of Republicans as actual inflation softened in 2023.
• For both short- and long-term expectations of inflation, Independents have consistently been closer to the political party not in the White House, rather than being squarely in the middle as they typically are for other measures.
• A growing share of consumers spontaneously mention that future economic outcomes are contingent on the upcoming election, but there are few differences in expectations between those mentioning elections and those who do not.