High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)
That’s from a great article by Betsey Stevenson and Justin Wolfers (whose twitter feed I really enjoy: @justinwolfers) on how the debt ceiling wrangle damaged the economy.
And there are other data points that may be more credible even if they give less clean of a signal. Let’s put on our Scott Sumner hat and ask what he’d have to say about all this.
I predict Scott Sumner will apply his model for NGDP expectations and post about these graphs from that summer:
Falling TIPS spread, strengthening dollar, falling stock market? That’s a nominal shock, folks.
And furthermore I predict Sumner is going to finish his post by pointing out that the Fed did nothing, even though it could have offset this effect with a stroke of its pen (ie press release with some mega-charged loose money /pro-NGDP rhetoric).
Not Unreasonable 