President Trump was already in a deep voting hole after the initial debate, but one remaining ray of hope for him was the economy. In order to Call on Republican leaders to end talks with Democrats on another stimulus package – like Trump on Tuesday – seemed like a bad move for the president, and in fact it did drop the stock market.
US GDP may have fallen at an annual rate of 31.7 percent in the second quarter, the biggest quarterly decline ever. Even so, Trump’s approval ratings for the economy had remained relatively solid: 51 percent of voters support his economic approach and 47 percent oppose it, according to the Real Clear Politics average. The economy was also one of the few topics where surveys regularly indicate this Voters prefer Trump over Joe Biden.
How can one explain this apparent separation? Well, Trump can actually make some decent arguments about the economy to voters based on the data. For example, the economy was pretty good for his first three years in office. And the rebound was pretty quick. The Atlanta Federal Reserve’s “nowcast” It is estimated that GDP grew 35.3 percent on an annual basis in the third quarterwhich ended on September 30th. The economy is still in worse shape than it was before the pandemic, but not The much worse.
Trump had also been able to patch many holes in the economy with that Set of stimulus packages Passed by Congress earlier this year, which injected trillions of dollars into the economy in direct cash payments, expanded unemployment benefits, and corporate protections. Indeed, one of the economic indicators that historically has been among the most reliable predictors of choice – disposable income – greatly increased amid the pandemic because of the stimulus benefits, although it has since declined as those benefits have lapsed:
The FiveThirtyEight economic index, an element of our presidential forecast, also agrees pretty well with Trump’s decent approval ratings for the economy, partly due to growth in disposable income. This is what was said on Tuesday morning. As you can see in the table below, three of the six categories we use – income, inflation, and stock market – were actually slightly positive for Trump. This partially offsets exceptionally poor employment numbers and fairly poor pandemic-related numbers for manufacturing and consumer spending. (The values in our economic index are Z scoresor the number of standard deviations above or below the mean in each category, based on historical and forecast economic data in the two years leading up to the elections, with much heavier weighting on the last quarters.)
|income||Real Disposable Personal Income||+0.57|
|inflation||Consumer price index||+0.64|
|Jobs||Payroll outside of agriculture||-2.39|
|expenditure||Personal consumption expenses||-1.11|
|Stock market||S&P 500||+0.79|
|Combined||Average of all six indicators||-0.47|
If we average the six categories together, the overall economic index is only about half a standard deviation below the average. At a time of high polarization and with Trump being an elected incumbent – elected incumbents usually win re-election – this is not so bad. In fact, the “fundamentals” part of our model predicted a referendum split of nearly 50/50 based on the latest economic index values.
Obviously, the economic index doesn’t capture everything that’s going on in the country – especially since Trump is 8 or 9 points behind in national polls. But stay with me for a moment. We can use the index to get a rough idea of how much stimulus funding could be at the beginning of the year helped Trump card.
For example, suppose that the disposable income component of our index with no incentive whatsoever had a z-score of -2.39, which was just as bad as the job component. If it had, Trump would have preferred to lose the referendum by 3 points based on the index rather than tie it. Instead of being 8 or 9 points down on polls – given the poor opinion of voters that he handled COVID-19 and everything else – he could instead be 11 or 12 points behind.
And that probably doesn’t go far enough, as the stimulus package has likely helped other categories like manufacturing and consumer spending as well. Judging by the reaction of investors after the talks broke off on Tuesday, this also helped keep the stock market happy. Instead, let’s assume that five of the six indicators in our index – anything but inflation – had a z-score as bad as the job component (-2.39). In this scenario, Trump would have likely lost 8 points based on the economic index and tenure. If you add his other issues to the mix, we may be talking about a mid double digit loss.
This certainly doesn’t mean that the collapse of further stimulus spending will push Trump’s polls back another 3 or 8 points. The news comes pretty close to the election (in our model only 11 percent of the forecast is based on economy and tenure, and that will drop to 0 percent by election day), the incentive wasn’t necessarily likely anyway, and the failure of further stimulus funding wipes out does not completely rule out the fact that people and businesses got help in the spring.
But it’s still hard to understand, especially at a time when the president’s numbers were already falling – easily and in some polls sharp so in others. And the way Trump went about it makes matters worse politically for him. Up until that point, House Majority Leader Nancy Pelosi had been exposed to at least one small risk: while the inducement might have helped Trump, she could have been partially blamed if talks broke down. But now, Trump’s tweets make it clear that he was the one who pulled back from the talks.
Other business stimulus issues were also very popular. Voters polled in the New York Times / Siena College national poll in late September favored a $ 2 trillion stimulus package with a margin of 72-23.
The possibility that the race would worsen due to economic improvements on the track was one of the things that helped Trump the most in our model. The odds for Trump’s electoral college were in our forecast on Tuesday afternoon at 17 percent – his lowest value of the year – but still much better than zero. However, the economic index was responsible for some of that 17 percent. But now with the voters may encounter discharge messages Instead of renewed growth, Trump may have undermined his best comeback strategy.