Republican Electoral Optimism Versus Consumer Sentiment

When it comes to politics, Republicans are incorrigible optimists. But bright smiles and hope may not be enough to avoid a calamity in the midterm elections that are already underway.

The latest polling from YouGov for the Economist indicates that 71 percent of Republicans expect the Grand Old Party will retain control of the Senate in the midterm elections. Just nine percent expect the Democrats to control, less than half as many as the 19 percent who say they are unsure. Sixty-four percent of Republicans expect to retain control of the House of Representatives, with 12 percent saying they expect Democrats to control the House and twice that many unsure.

That’s considerably more optimism about the prospects for the GOP than investors responding to Bank of America’s fund managers survey showed. Thirty-one percent expect a Democrat sweep, 44 percent expect Democrats to take the House while Republicans hold the Senate, and just four percent see the Republicans keeping both.

The Economic Fundamentals Look Strong

Our friends in Republican politics point to the buoyant economic numbers as justifying their confidence. The economy is growing at a rapid rate, with the Atlanta Fed’s GDP estimate showing a five percent growth rate for the third quarter. Unemployment has fallen to 4.1 percent, a level below the Federal Reserve’s longer-term estimate of full employment. Jobless claims are running at the lowest levels since the late 1960s. Business investment is soaring. Manufacturing output and employment are rising. The purchasing managers’ indexes suggest a broad economic boom. Profits are soaring and the S&P 500 is up nearly 12 percent for the year. Consumer spending has remained robust, defying predictions that high gasoline prices would dampen buying elsewhere.