Consumer attitude measures are divided by political affiliations. That’s nothing new. Sentiment readings have long depended partly on which party occupies the White House. Republicans currently rate economic conditions better, just as Democrats did during the Obama years (Independents fall somewhere in the middle). What’s different is that, no surprise, these ratings are even more sharply divided now. There is another sharp division that matters more. Business sentiment is decidedly pessimistic, while consumer sentiment is generally more robust. How that difference gets resolved will be key in 2020.

Financial market participants have a lot of interest in consumer attitude measures. However, given income, wealth, and the ability to borrow, confidence adds little to the consumer spending equation. That’s not to say that confidence doesn’t matter. Rather, slow or declining income growth will almost certainly coincide with declining consumer attitudes. If consumer confidence was all you had, then it would be helpful in gauging spending. Note that there is a fair amount of noise in the monthly surveys. Changes of a couple of points in either direction are usually not meaningful. The trend is what matters.

Consumer attitude measures have generally remained strong this year, supported by job gains and wage growth, and we should see consumer spending trend at a moderately strong pace in 2020. However, core retail sales growth was weak into October and unit motor vehicle sales were reported lower. That’s not necessarily troublesome. Consumer spending growth tends to be lumpy – a string of strong months followed by some soft months is not unusual.

As one might expect, business attitude measures have weakened steadily this year. The Conference Board’s CEO Confidence Index has fallen to its lowest level in a decade, reflecting tariffs, trade tensions, and slower global growth (factors repeatedly mentioned by the Fed in cutting rates in recent months). Uncertainty is a dampening factor for business fixed investment, and firms have curtailed capital spending plans. As readers are well aware, tariffs are a tax on U.S. consumers and businesses. They raise costs, invite retaliation, disrupt supply chains, and undermine business investment. As the trade conflict drags on, it will have a more lasting impact on business.

The key question is whether continued strength in consumer spending will help to turn around business attitudes and capital spending – or will poor business attitudes feed through to labor market weakness, reducing income and spending? Consumer spending accounts for 68% of GDP. Business fixed investment is a little over 13% of GDP. However, it’s called “the business cycle” for a reason. Recessions are driven mostly by swings in business investment rather than consumer spending (consumer spending never declined in the 2001 recession).