IT’S (CHANGE IN) THE (FUTURE) ECONOMY, STUPID: ECONOMIC INDICATORS, THE MEDIA AND PUBLIC OPINION

It’s (Change in) the (Future) Economy, Stupid: Economic Indicators, The Media and Public Opinion Is now available on Early View, the authors summarize the article here:

Stuart N. Soroka (University of Michigan), Dominik A. Stecula (University of British Columbia), and Christopher Wlezien (University of Texas at Austin)

The economy matters for politics. First, there are clear links between economic conditions and attitudes about governments and policies. Second, public perceptions of economic conditions matter, as they can influence vote intentions and government evaluations above and beyond the impact of the actual economy. The sources of public perceptions of the economy are nevertheless not well understood. This is particularly true for what may be the single greatest influence on public economic perceptions (alongside the actual economy, of course): mass media.

It is with this in mind that our recent work has focused on understanding systematic relationships between media coverage of the economy and the economy itself. We rely on nearly 30,000 news stories (analyzed using the  Lexicoder Sentiment Dictionary) over 30 years in the US, alongside measures of the economy and public economic sentiment. We focus on two critical but under-appreciated aspects of the media-economy-opinion nexus.

First, we consider the possibility that both media and public opinion react more to change than to levels in economic conditions. We find that both focus on change – they do not react to high unemployment so much as an increase in the rate, for instance.

Second, we examine whether the media and the public respond to the past, present or future economy. We find that they react mostly to where the economy is going.

We find, in sum, that media coverage of the economy is mostly driven by changes in the future economy.  The Great Recession offers one recent illustration. Figure 1 shows two lines: one is levels of the Conference Board‘s leading indicators series and the other is the tone of economic news in the media. Most striking is the marked improvement in media tone beginning in mid-2008, even as the economy continues to decline.

Why does media content improve even as the economy continues to falter? The answer lies in the media focus on changes over levels. Consider the link between media content and the economy illustrated in Figure 2. This figure is based on exactly the same data. Here, however, Conference Board leading indicators are shown not in levels but in month-to-month changes. Media tone may not match well with levels of the economy, but it does powerfully relate to change in these conditions. (Note the Pearson correlation of 0.59 in Figure 2 by comparison with -0.22 in Figure 1.)

Does coverage matter?  We show that it does for public perceptions of the economy, both retrospective and prospective.  We also show that those perceptions impact the tone of coverage itself, independently of economic conditions.  It thus appears that media coverage both leads and follows public opinion.

These findings shed light on the nature of economic news coverage, particularly regarding shifts in the tone of media coverage that seem to be at odds with actual economic conditions. They also are of real consequence for those interested in how publics respond to economic information. Our findings have implications for consumer behavior, for policy attitudes, and for economic voting. Indeed, they may make more understandable the tendency to reward politicians based on the magnitude and direction of recent – and perhaps even future – economic change.