FT: Economic confidence data losing power as politics, inequality distort picture

Economic sentiment surveys are becoming less reliable indicators of real economic performance as political divisions, falling response rates and widening inequality increasingly distort public perceptions, according to investor and author Ruchir Sharma.

Writing in the Financial Times, Sharma, chair of Rockefeller International, said the gap between economic data and public confidence has reached unprecedented levels, with consumers continuing to spend despite survey readings that resemble recession conditions.

US economic growth is expected to remain above 2% when the latest gross domestic product figures are released, yet consumer confidence surveys from the Conference Board and the University of Michigan remain near historic lows. Sharma noted that such weak readings have only been seen a handful of times in recent decades, including during the 2008 global financial crisis.

Business surveys have shown a similar disconnect. Manufacturing and services indicators have repeatedly pointed towards recession risks since the pandemic, despite the economy continuing to expand. Sharma argued that some widely followed surveys are now providing a distorted picture of economic reality.

He attributed the decline in survey reliability to several factors, including lower participation rates, the influence of social media on public sentiment and growing political polarisation. Economic views have increasingly reflected partisan loyalties, with voters tending to assess the economy more negatively when their preferred party is out of power.

Sharma highlighted inequality as a major reason behind the divide between economic performance and public mood. Unlike GDP figures, which measure overall economic activity, surveys give equal weight to every respondent. As wealth becomes increasingly concentrated, consumer spending is being driven by a smaller share of the population, making average sentiment less representative of overall growth.

In the United States, the richest 10% of households now account for about half of consumer spending, compared with roughly one-third three decades ago, Sharma wrote. He argued that many households therefore feel worse off despite strong headline economic figures.

The political split over economic conditions has also widened sharply. Sharma pointed to surveys showing Democrats and Republicans holding dramatically different views of the economy despite similar economic indicators compared with previous years.

He also cited the impact of inflation, saying that many lower-income households continue to feel pressure from higher prices. The share of consumers who say inflation has left them financially worse off has risen significantly since the pandemic.

Meanwhile, confidence among wealthier Americans has improved as financial markets reached record highs, creating an increasingly divided economic outlook between higher- and lower-income groups.

Sharma concluded that weak sentiment surveys should not simply be dismissed as "bad vibes", but rather viewed as a reflection of genuine dissatisfaction with an economic system many people believe favours wealthy individuals and large corporations.

Until those underlying concerns are addressed, he argued, economic confidence surveys may continue to have limited value as predictors of future growth.

By Aghakazim Guliyev