Pessimism and uncertainty characterize the thinking of many investors these days, with Gallup/UBS Investor Optimism scores hitting new lows in the third quarter of this year, falling from levels that haven't been particularly high this year anyway. Many investors still feel that their portfolios and the stock market overall will continue to be challenged over the next year.
Nevertheless, some groups of investors tend to maintain a rosier outlook than others. Interestingly, Republican investors in particular are currently more likely than Democratic investors to be upbeat in their economic outlook as of the third quarter of 2002.
Economic Growth
Republican investors are far more likely to say they are at least somewhat optimistic about economic growth over the next 12 months: More than half of Republican investors (56%) report being at least somewhat optimistic about economic growth, compared to 44% of independents and 41% of Democrats. Nearly twice as many Democratic investors as Republican investors say they are "very pessimistic" about economic growth (11% vs. 5%, respectively).
Unemployment
Similarly, Republicans are far less likely to be concerned about the unemployment rate over the next 12 months. Almost half of Democrats (49%) are at least somewhat pessimistic about the unemployment rate, as compared to just 31% of Republicans.
The Stock Market
Half of Democrats (50%) report being at least somewhat pessimistic about the likely performance of the stock market over the next year, compared to just 38% of Republican investors. Republicans are also far more likely than Democrats (71% versus 55%) to say that the stock market will be at least somewhat higher a year from now from what it is today.
Good Time To Invest?
That greater optimism among Republicans also appears to be translating into an enhanced willingness to jump into the financial markets. Nearly three in five Republicans (59%) say that it is "a good time to invest in financial markets" compared to less than half of Democrats (46%) who say so.
For the most part, optimism levels among politically independent investors tend to be similar to or slightly higher than those of Democrats. Across the board, however, independent investors show significantly less optimism than Republicans about the economy.
Why Is There a Difference?
Two potential explanations for the partisan differences in economic outlook stand out. The first is a possible relationship between the tendency to identify with the Republican Party and the tendency to be confident about the U.S. economy, or at least to maintain confidence during economically challenging times. If that is the case, we should be able to find evidence that Republicans were typically more optimistic than Democrats during previous presidential administrations, including those of Democratic presidents.
Another possibility is that the political connection to economic optimism is derived largely from one's confidence in the performance of the current administration. Republicans may feel that the current Republican administration will improve the economy, while Democrats may lack such confidence. If that is the case, we should be able to find evidence that Democrats were more economically optimistic than Republicans during the Clinton administration, or at least that there was greater parity in investor confidence between the two parties.
To the extent that is true, those partisan assessments may operate on a conscious level ("I trust George W. Bush to improve the economy") or on an unconscious level ("I feel very optimistic about the way the country is going these days"). The relationship could also reflect the need to avoid cognitive dissonance -- that is, a subconscious effort to reconcile one's actions with one's observations. Someone who voted for Bush and observes that the economy is doing poorly may experience "dissonance" between their behavior (i.e., their vote) and their perception (the economy is going poorly under the person for whom I voted). Because the past voting behavior can't be changed, the natural tendency may be to adjust one's opinion to match -- e.g., in the case of Bush voters to reflect more optimism about the economy.
Evidence from previous Gallup studies suggests that optimism in a general sense changes with government administration. A previous analysis (see "Americans' Satisfaction With U.S. Depends on President's Party" under Related Items) showed that Americans' satisfaction with the way things are going in the United States is highly dependent upon the combination of their partisanship whether it conflicts with that of the current administration. That is, Republicans were found to be more satisfied than Democrats during transitions to and during Republican administrations, while the converse is true during Democratic administrations. Gallup is currently conducting research to determine the extent to which that holds true for different issue and during different administrations.
Thus, while it is clear that Republican investors are currently more optimistic about their financial futures than their Democratic counterparts, upcoming findings should shed light on how likely it is that those attitudes will change with the political tides.
