Seeing the Economy through Colored Glasses: Partisanship in Macro and (not in) Micro Expectations

Households view the macroeconomy through partisan lenses, yet expectations about their own finances remain anchored in personal experience. Using survey data spanning 12 U.S. presidential elections since 1980, we show that macroeconomic expectations exhibit sharp partisan reversals around electoral turnovers, whereas expectations about personal finances and employment risk do not. This distinction helps explain why sharp swings in sentiment translate into little change in household spending. We develop and estimate a model of macroeconomic belief formation with partisan bias, partisan sentiment, and extrapolation from personal to aggregate expectations. Partisan polarization was already substantial in the 1980s and resurged after 2016, yet differences in personal economic experiences remain the dominant source of disagreement in macroeconomic expectations. Consistent with this extrapolation mechanism, households expecting personally beneficial policies also anticipate stronger aggregate economic outcomes. Distinguishing between macroeconomic and personal expectations is therefore essential for interpreting swings in household sentiment.