Will We See a Burst of Post-Election Optimism?

Today is Black Friday: the perfect day to check in on US consumer spending and shopping intent for the holiday season ahead. It’s safe to say that the last few weeks—and months, even—have been rather eventful for our southern neighbours. Were yesterday’s Thanksgiving festivities joyful overall, or were Americans sharing their post-election woes?

While voters may have believed that the economy is on the wrong track—a belief that helped hand Trump his victory—the truth is that the US economy and consumer spending are both on the upswing. The second estimate for third quarter GDP growth, released this Wednesday, showed that real GDP grew an annualized 2.8% over the summer. That includes a 3.53% gain in real consumer spending, which is its best performance since winter 2023. And the fourth quarter is off to a respectable start as well. While hurricanes may have put a temporary damper on spending growth (0.1% in October vs. 0.5% in September), real disposable income posted its best monthly increase since January.

That being said, a little boost in consumer confidence would be welcome this holiday season—US retailers would especially appreciate it. The forecast External link. we published in November called for solid growth in the first quarters of 2025. Positive sentiment from households and businesses would shore up the US economy and help it stay the course in the face of uncertainty. This may prove necessary, given the impetuous nature of the incoming president.

We were hoping to see the same post-election euphoria that we witnessed back in 2016, the last time Trump won. That November, the Conference Board Consumer Confidence Index surged 8.6 points, while the University of Michigan index climbed by 6.6 points. Unfortunately, history did not repeat itself. This time around, the indexes rose just 2.1 points and 1.3 points respectively (graph 1). And the final version of the Michigan index came in lower than its preliminary results, which had only included data from before the election. 

All the same, some factors were looking rather positive. The stock markets were generally up, while jobless claims fell and stayed down. Gas prices also continued to drop: on a national level, they were below US$3 per gallon for the first time since last February.

So far, it seems that the election has had less of an impact than predicted. Confidence soared for Republicans in November but cooled for Democrats. The split is especially pronounced for consumer expectations (graph 2). Republicans are looking forward to the change in government, and Democrats are dreading it. We also get the sense that independents have some lingering concerns. That being said, the situation is still new. As the confidence indexes continue to shift through December and the start of the new year, we’ll see if the trend strengthens or dies out. We’ll also have more data next Friday, when the University of Michigan’s preliminary results for December are released.

How Are Businesses Feeling?

Back in 2016, business confidence also rose dramatically. The NFIB Small Business Optimism Index swiftly climbed to its highest point in more than twelve years (graph 3). This momentum was fuelled by Trump’s promises of tax cuts and deregulation. The ISM Manufacturing index also spiked in late 2016, though the Services ISM index posted more muted growth. On this point as well, we’ll be better able to gauge the current situation by this time next week. The ISM Manufacturing and Services indexes for November will be released on Monday and Wednesday respectively. It will be interesting to see if the components for new orders, import orders and inventory sentiment begin to trend up as businesses prepare for potential tariff increases. The November results for the NFIB Small Business Optimism Index will be released on Tuesday, December 10.

Threats to Confidence

Obviously, certain factors may continue to weigh down business and consumer confidence. Even though inflation has slowed considerably, it hasn’t disappeared—and it has even picked up a bit in recent months, especially for services. Consumers continue to be frustrated by the cost of living, which is higher than its pre-pandemic levels. According to the American Farm Bureau External link., the average cost of Thanksgiving dinner was 5% lower than in 2023, which was in turn down 4.5% from 2022. All the same, “Two years of declines don’t erase dramatic increases that led to a record high cost of $64.06 in 2022. Despite the encouraging momentum, a Thanksgiving meal is still 19% higher than it was in 2019.”

The policies promised by Donald Trump likely won’t help bring these costs down: if anything, they’ll have the opposite effect. Restrictions on immigration, or mass deportations, would harm the US farming operations that rely on this labour. Tariffs could also drive up producer and consumer prices. And even before these policies are implemented, the uncertainty surrounding these issues may be a drag on economic conditions. We had a preview this week, when Trump said he was ready to impose steep tariffs on Canadian, Mexican and Chinese goods on January 20. We can see that online searches for tariffs have skyrocketed (graph 4), likely reflecting the level of concern these policies elicit.

All in all, there’s still room for both optimism and pessimism in this post-election world. Will business and consumer confidence land on a net upward trajectory? For the good of the US and Canadian economies, we certainly hope so—but nothing’s set in stone.