As Polling Numbers Fall, Is the Economy Next?

The stock market appears set for a massive reality check, and Trump’s polling numbers could signal that a shock to the financial system is coming.

A new survey, conducted by the Associated Press-NORC Center for Public Affairs Research, showed that 55 percent of those surveyed disapproved of how he’s handling the economy. The study also found that 65% of Americans say they think the country is on the wrong track.

So why does this matter to an economy that has seen U.S stock indices rally near 15% since Donald Trump has entered office?

The reality is that the “Trump trade” has met almost none of this Administration’s agenda and the likelihood of failure is not only settling in on the market, but hitting everyday Americans confidence.

These numbers show that American consumer confidence matter to belief that the President can offer economic prosperity. While it is true that this may not be the overall fault of this sitting president, it is his problem.

The theory is, if Americans feel that leadership and government is on the wrong track, can they rely on job security? That social psychology plays into spending habits, savings patterns and stock market interactions of the American consumer.

This impact might take at a very sizable view of the economy, but the cold reality is that the U.S economy may already be feeling the effects.

Featured in Bloomberg one financial analyst highlighted why he believes consumers aren’t spending in the economy and why retail sales are down.

As Gary Schilling noted:

“Many Americans are still stressed financially. The rises in incomes and net worth have predominantly gone to high-income and high-net-worth households… Those people, however, don’t change their spending appreciably as their assets and net worth rise. And with the ongoing polarization of incomes, the net-worth-induced wealth effect is declining.”

While spending shifts might seem feasible for those with steady incomes or to active market investors, consumption measurements don’t stop there.

Regardless of consumer confidence, under conditions that consumption slows, it is likely that investment trends follow.

Economist and New York Times best selling author Jim Rickards’ reports, “Businesses will not invest in buildings and heavy equipment unless the customers are there to purchase the output needed to justify those investments in the first place.”

“Simply put: when the consumer catches a cold, the entire economy can get pneumonia. Something like that appears to be happening.” notes Rickards’.

Should We Trust the Polls?

So what if the polling numbers on the President aren’t all they’re cracked up to be? What if it is simply Trump bias? Turning to other government leadership, the numbers offer an even more wistful indicator.

A recent poll from May 2017 found that nearly 74% of Americans, that’s nearly three out of every four people, disapprove of Congressional leadership.

What that corresponds with in the real economy does not offer an optimistic outlook. In fact, job numbers from the same month offered a much darker picture.

The job growth numbers for May 2017 dropped at a shocking rate with only 138,000 new jobs added. That goes in direct contrast to the forecast growth of 185,000 jobs according to a report from the Department of Labor at the beginning of June.

Although the electoral impact on the market in 2016 may have seen the “Trump trade” push for a stock market rally not everyone is so convinced of such real growth. Within a “normal” environment the stock market is believed to offer a fair gauge at how the economy is running. That no longer appears to be the case.

President Reagan’s former Budget Director and financial analyst David Stockman views an entirely different take on the state of confidence and the economy.

“There has been zero net gain in industrial production since September 2007; no net gain in breadwinners jobs since January 2001; and zero gains in real median family incomes since 1989.”

Stockman continues to highlight the stark financial numbers to what he has labeled as “Wall Street earnings hopium.” The former Wall Street and Washington insider writes, “I think the post-election “reflation trade” is the greatest sucker’s rally we have ever seen.”

Polling, Wall Street and the Economy

Looking to Wall Street for signals that indicate why confidence is muddled might only leave more questions. After the latest round of Comey hearings the market hit record highs.The disconnect leaves Main Street in the giant eye of a financial hurricane.

Perhaps Trump’s polling numbers are attributed to an economy that is stagnating at a gradual pace.  Under such circumstances, loan numbers and credit cards often signal what’s ahead.

Former Federal Reserve official and author of the recent book Fed Up Danielle DiMartino Booth has revealed a dangerous trend is forming.

DiMartino Booth penned, “According to the Fed survey, at minus 13.3 percent, demand for auto loans flat-lined in deeply… the worst levels of the current expansion. This data point corroborated the Michigan survey, which showed that those who said it was a good time to buy a car fell to the lowest level since August 2014.”

“Meanwhile, demand for credit card loans slid to minus 10.2 percent from minus 8.3 percent in the last three months of last year.”

“In the event you’re detecting a trend, households are sending out distress signals that have just begun to be picked up in housing, even as household debt levels recapture their pre-crisis highs.”

Regardless of the attempts by major bank reports and various media outlets trying to convince policymakers in D.C that economic growth stems from investors, the real story shows a different tale.

While Wall Street continues to call the shots in the Beltway, the consumer spending market makes up nearly two-thirds of U.S GDP.  That puts Main Street’s consumption at nearly 70% of the total economy.

The impact of consumption and consumer sentiment can have political and economic ramifications.

Jim Rickards leaves his final remarks over the U.S economy slamming on the breaks urging, “On top of this, the Fed is creating headwinds with rate hikes and by reducing the money supply through its new program of quantitative tightening, or QT.

“With stock market indices hitting new all-time highs almost daily, and the economy hitting stall speed, a severe stock market correction is in the cards.”

Even amongst republicans the polling numbers are now starting face the economic reality. A recent poll found that Trump’s satisfaction rating dropped seventeen points for Republicans over the past several weeks.

As the electorate sobers up, the market may soon wake up to a financial hangover that it just can’t shake.  How polling, spending and sentiment numbers are faring may well play a critical role in the future of the economy.

Thanks for reading,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning