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posted on 24 June 2016

Will Brexit Affect U.S. Consumer Confidence? The Outcome May Determine Our Next President.

by Benn Steil

-- Co-authored with Emma Smith

It's "the economy, stupid" - or so claimed famed campaign strategist James Carville during Bill Clinton's first successful run for the presidency, back in 1992. Nearly a quarter century later, it's still the case.Or more specifically, it's confidence in the economy (, stupid). At least that's what we've found.consumer.confidence.380x200

Going back to 1952, consumer confidence has been a fair guide to presidential election outcomes. As the graphic below shows, confidence has been 12 points higher on average in years the incumbent party has won than in years the opposition party has won. (In statistical terms, the gap is significantly different from zero at the 1 percent level of confidence.)

This makes sense intuitively. Voters are less likely to want big changes when they feel good about economic prospects, and more likely to want it when they think the economy's headed south.

It is also good news for Hillary Clinton. As the graphic shows, confidence has been relatively strong over 2016 to date - right at the average level for an incumbent party victory.

But how confident should she be at this point? Well, George W. Bush's victory in 2000 was a major outlier (consumer confidence was much higher then). Yet we calculate that the conditional probability of her winning if confidence remains where it is presently (94) is about 80 percent.

Between now and November, however, there is still a lot of time for bad economic news. Indeed, the June 23 Brexit vote in Britain, which will see the country leave the European Union, is one such piece of bad news; it may well dent consumer confidence by way of falling markets, lower investment and less hiring. And voting history suggests that's good news for the Trump camp.

-- Benn Steil is director of international economics at the Council on Foreign Relations and author of The Battle of Bretton Woods. Emma Smith is an analyst at the Council.

Original op-ed link: http://www.pbs.org/newshour/making-sense/column-will-brexit-affect-u-s-consumer-confidence-the-outcome-may-determine-our-next-president/

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