With a new administration set to take office in 2025, a different set of economic policies will come into play, shaping consumer sentiment and driving spending behavior. We aren’t sure quite yet exactly what these policies will be – just as for brands, campaign promises often diverge significantly from the delivered experience. But from what we can discern both from policy chatter and preliminary market movements, we can draw some early insights:
The election result, for those who like it, will not materially affect consumer spending. The stock market is on a tear, likely buoyed by the promise of a favorable tax climate, especially for corporate taxes, under the new administration. But the promise of corporate tax breaks has quite some distance to travel before they trickle down, if at all, to the average person’s kitchen table. Our analysis has shown that many of the economic benefits of recent years have not been distributed evenly across income groups, introducing a wedge between economic strength and consumer sentiment. The present economic climate remains unchanged, and so will election-fueled consumer spending.
The election results, for those who do not like it, will also not materially affect consumer spending. While conventional wisdom may suggest that those dissatisfied with the outcomes of an election may withhold spending, the data does not support that claim. Researchers at Princeton and Chicago analyzed four presidential elections from 2000 to 2012 and found that ideological opposition to an election outcome did not drive consumer behavior and spending. While some parts of the population may not be in the best of spirits, their spending will not suffer (often, such consumers self-report that they will spend less, but the behavioral data does not support their claim).
New economic policies raise the specter of higher prices, which may spook consumers. The new administration’s trade and immigration policies may adversely affect prices. These inflationary tendencies will stress inflation rates that have only recently settled into a more palatable range between two and three percent. If consumers were to see higher prices in 2025 as a result of tariffs or labor shortages, the weary consumer may pull back on spending. However, given how much of a sore point inflation was in this election cycle, we would expect the new administration to be especially sensitive to any inflationary policy.
Any reversal of rate cuts will dampen spending. After a long spell of rate increases to cool down the economy, the Fed has moved to cut rates twice since September. If the economic policies described above put upward pressure on prices, the Fed, which makes decisions independent of the President, may increase rates to cool inflation. Any such increase will dampen market sectors like automotive, consumer durables, and especially housing, which will have a multiplicative effect on various other goods and services. Interest rate movements will likely remain a bone of contention between the Fed and the next administration for the next four years.
We are just days into a new mandate, and much will shake out in the next few months as the new administration prepares to take office. We’ll track the news to understand how it may affect consumers and brands – expect an update in January as we set the stage for consumer spending and behavior in 2025.
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