Economic Indicators Suggest President Trump's Reelection
In testimony on Capitol Hill this week, Federal Reserve Chair Jerome Powell repeatedly praised the strength of the U.S. economy across multiple indicators. He pointed to an historically-low unemployment rate, rising wages, and continual, moderate overall growth. Powell has a notably turbulent relationship with President Donald Trump, but his assessment should have been music to the ears of top White House and Trump campaign officials (even if the president could not help live-Tweeting his criticism of Powell’s testimony). The economy, after all, is historically perhaps the most reliable presidential election indicator.
According to Brad Neuman, director of market strategy at the investment firm Alger, going back to 1932, when there has been no recession in the two prior years, the incumbent presidential candidate has won reelection. (As a refresher, a recession is defined as two consecutive quarters of negative economic growth.) Economic data can be sliced and diced seemingly countless ways, but most analysts agree with Neuman.
There is bipartisan acknowledgement that, historically-speaking, President Trump is in an enviable position. In an interview with Business Insider, former Bush administration economist Douglas Holtz-Eakin said, “The economy is a clear asset for” President Trump. Steven Rattner, a former economic counselor to President Barack Obama, said President Trump is riding “the strongest tailwind of any incumbent running for re-election since 1900.”
Judging by most indicators, Neuman, Holtz-Eakin, and Rattner are right.
During the 1980 election, then-presidential candidate Ronald Reagan asked whether Americans felt that they were better off than they were four years ago, when Jimmy Carter took over the Oval Office. In 1992, Bill Clinton’s lead campaign strategist summed up Clinton’s campaign strategy thusly: “the economy, stupid.” Campaigns have long recognized that voters tend to enter the poll booths thinking about their wallets and pocketbooks.
Just this morning Gallup released the results a survey asking respondents if their economic situation has improved from three years ago. Nearly two-thirds (61 percent) said it had. That result is 16 points higher than it was in 2012 when former President Obama was running for reelection. It is 11 points higher than it was for both President George W. Bush (2004) and Bill Clinton (1996) in their respective reelection years.
Gallup also asked who should get credit—President Trump or former President Obama—for the current economy. More respondents said President Trump deserves credit.
That’s not all from Gallup. A week ago, the organization released the results of a poll that asked Americans how they think their personal finances will be faring a year from now. About three in four respondents (74 percent) predicted they will be better off financially in 2021. That number is at the highest level it has been in Gallup polling since 1977 and, of course, is eons higher than it was just a decade ago as the U.S. economy recovered from the worst financial crisis since the Great Depression (about 50 percent).
The so-called misery index, which was developed by economist Arthur Okun more than half a century ago, is another indicator analysts often look at to evaluate an incumbent president’s chances of reelection. The index, which adds together the unemployment rate and the inflation rate, provides a perspective into the economic misery that Americans are feeling. The lower the index is, the better Americans are feeling. Based on this data point, the news also is good for President Trump. According to an article at MarketWatch, the misery index was around 7.4 percent when President Trump took office in January 2017 and is just 5.9 percent today. Only two incumbent presidents, Gerald Ford and George H.W. Bush, failed to secure second term when the misery index declined during their tenures.
One concern Federal Reserve Chair Powell did raise in his testimony Tuesday was the coronavirus, which is now called COVID-19 and has claimed more than 1,100 lives worldwide. Powell said the Fed is “closely monitoring” the situation and warned “disruptions in China” could “spill over to the rest of the economy.” Including the U.S. economy, of course.
So far, however, the impact stateside has been limited. In fact, Americans do not seem too worried about COVID-19. Morning Consult released brand new polling on consumer confidence this morning and concluded, “U.S. consumers remain largely unfazed by the increasing severity of the coronavirus outbreak—even as economists at the Federal Reserve assess the downside risk to the economy.” Indeed, only 39 percent of Americans think the virus could impact their local economy (Half think it will not.) Additionally, UBS also noted this week that the outbreak has not yet rattled the markets.
Still, Trump administration officials are not resting on their laurels and have been trying to message the potential pandemic as a possible boon for the United States. In an interview at the end of January, U.S. Secretary of Commerce Wilbur Ross said he thought coronavirus might “help to accelerate the return of jobs to North America.” Commerce Department spokespeople doubled down on the secretary’s comments when given the opportunity. In a statement after Ross’s interview, agency representatives argued, “It is also important to consider the ramifications of doing business with a country that has a long history of covering up real risks to its own people and the rest of the world.”
While the economy—minus a potential downturn due to a spreading coronavirus—is trending in President Trump’s favor, there have been a handful of analysts who have cautioned not to read too much into jobs, income, or growth data. Other factors could come into play, particularly when it comes to an unconventional commander in chief.
Since 1980, Moody’s Analytics has used three models (stock market, unemployment, and pocketbook finances) to predict election outcomes based on economic performance. Its model has been incorrect only once in forty years—in 2016.
While this year these three models each predict an Electoral College victory for Trump, analysts from the firm cautioned that increased enthusiasm on the part of Democrats could rebalance the scales in favor of that party’s nominee. In fact, in an analysis issued last fall, Moody’s said the election outcome gets “much closer under alternative turnout assumptions.” In fact, “Under the assumption that the nonincumbent share of turnout in 2020—that is, Democrats and independents—were to match its historical maximum across all states, only the pocketbook model predicts a victory for Trump. Under such a high-turnout scenario, the Democratic Party nominee would win handily under the stock market model and by the skin of their teeth under the unemployment model.”
Michael Zezas, head of U.S. public policy strategy at Morgan Stanley, also is skeptical the president will be reelected. In an interview with CNBC in January, Zezas noted looking at economic history might not be reliable. He warned the sample size of just 45 presidents is small and argued, “It’s entirely possible that it’s a coincidence” that presidents overseeing relatively good economies have been reelected. Zezas suggested approval ratings might be a better indicator of reelection chances.
While overall approval ratings are a topic for another post, according to Gallup, it is worth noting that, when it comes to the economy, President Trump has the highest approval rating of any president in the last 20 years.