Consumer Confidence & National Debt: The Two Keys to the White House in 2016?

Abstract

Conventional thinking concerning political elections has long been, "it's the economy stupid.”  This view is largely supported by the statistical significance of consumer sentiment as a predictor of Presidential election outcomes (Erikson, MacKuen, & Stimson, 2002) and the citizenry's' overall trust of government (Chanley, Rudolph, & Rahn, 2000).  In essence, sway consumer sentiment positively and potentially sway election outcomes as well.  Unfortunately for those holding or seeking public office, consumer sentiment is largely determined by economic factors merely influenced by elected officials and not under their direct control; i.e. unemployment, inflation, stock market performance, etc.

This paper empirically examines what other factors might influence consumer sentiment, factors directly controlled by those holding office.  Specifically, the study examines two new factors: the impact of the national debt (as a percentage of real gross domestic product) and the federal budget deficit (as a percentage of real gross domestic product) on consumer sentiment.   We find that both are statistically significant to reported consumer sentiment, with the level of national debt the second most significant predictor behind only the rate of unemployment.  The ability to influence consumer sentiment, a known predictor of Presidential election outcomes, through controlling the two new independent variables of debt and deficit, has clear implications for the current Presidential candidates as well as fiscal and monetary policy implementation under any new administration.