Why Are Businesses Still So Giddy About Donald Trump?

U.S. President Donald Trump
President Trump shakes hands with Jay Timmons, president and CEO of the National Association of Manufacturers, during a meeting at the White House on Friday.

On Friday, President Donald Trump gathered a group of executives and business owners at the White House in order to tout a new sentiment report from the National Association of Manufacturers: According to the report, a record 93.3 percent of manufacturers are positive about their own company’s outlook. That’s close to unanimous, and it’s up from 78 percent in December and up from only 61 percent in the third quarter of 2016. Some 60 percent of the manufacturers surveyed believe the country is on the right track, up from a pathetic 26 percent in December.

That’s not the only measure of sentiment that’s on the rise. Positive home-builder sentiment has risen from 63 percent in October to 71 percent in February—a level not seen since the housing boom of 10 years ago. Consumer confidence, as measured by the Conference Board, rose sharply in March.

These sugar highs are especially striking because not that much has changed in the real economy so far this year. Durable goods orders are up 1.7 percent (meh!) in the first two months of 2017 from last year, a rate of change that normally wouldn’t elate manufacturers. In the first two months of 2017, new home sales grew at a slower rate than they did for all of 2016. Employment and wages are growing at roughly the same rate they were in late 2016.

What gives? Trump, obviously. The conditions haven’t changed, but expectations have. If you’re a manufacturer or a builder or a worker and you think the man in charge is going to work with Congress to cut your taxes and regulations on the business, thus making you more wealthy, then the mood shift makes sense. Especially when the guy he’s replacing was an anti-business ogre who wanted to raise taxes.

But I think there’s something more visceral at work that has less to do with policy and everything to do with the metric that these surveys measure: sentiment. Our feelings about business mirror the bipolarity of our politics: It’s all sunshine when the person with whom one identifies is in charge and gloom and doom when he (or, in this case, she) is not. I am surely not the only one who knows people who have sunk into deep funks since November’s election even though there was no material change to their financial, social, or economic circumstances. And the same factors that turned many smug Democrats into depressives in November have elated many Republicans.

But as with so many other things, this partisan economic bipolarization is asymmetric. The Gallup Economic Confidence Index plunged into negative territory during the recession of 2008–09 but barely budged into positive territory during the Obama years. And yet it spiked sharply into the positive territory after the election and has remained there ever since. That is almost entirely because Republicans instantly surged from depressed to psyched. As Gallup noted, “During the Obama years, Republicans were deeply pessimistic about the state of the economy—with weekly U.S. economic confidence often in the negative 40s, 50s and even 60s. It stood at -43 the week before the 2016 election. With Trump in office and Republicans in control of Congress, their confidence is nearly 100 points higher—+46 last week, for instance.” The surge in optimism among Republicans, however, has not been matched by a surge in pessimism among Democrats. Hence the net growth in these sentiment indexes.

This asymmetric polarization is evident when you survey the opinions of groups of people who are disproportionately Republican-leaning, like homebuilders or manufacturers. Homebuilders have plenty of reason to feel good. But in the past few months, significant challenges have emerged: Interest rates are rising, land is getting more expensive, and they can’t find people to do the work. There’s talk of getting rid of the mortgage interest deduction, which would be very bad indeed for business. Yet their giddiness has surged in the past few months to heights not seen since the latest housing boom. The same holds for manufacturers, who have gone from feeling so-so before the election to feeling elated in its aftermath.

The issue with sentiment indices is that they measure what people are feeling and saying, not what they are actually doing. A recent report form Morgan Stanley highlighted the remarkable divergence between soft indicators like sentiment and hard indicators like actual economic data that has emerged in the past few months. Again, this is Trump’s work. The former show an economy poised to rocket to the moon after eight years of expansion. The latter point to continuing muddling at a low growth rate. They can’t both be right.

The reality, of course, is that very little has changed in the economy under Trump and that the new power arrangement has yet to enact any legislation that is good for businesses on the whole. In the meantime, actions taken by the administration have been bad for many particular businesses and industries, like travel and tourism, or anyone who depends on trade. The big question, for now, is what it will take to send all those sentiments southward.