President Trump was already in a deep electoral hole following the first debate, but one remaining bright spot for him was the economy. So calling on Republican leaders to end talks with Democrats on another stimulus package — as Trump did on Tuesday — would seem like a bad move for the president, and, in fact, it did send the stock market tumbling.
True, U.S. GDP fell at an annualized rate of 31.7 percent in the second quarter, the largest ever quarterly decline. But Trump’s approval ratings on the economy had remained relatively solid despite this: 51 percent of voters approve of his economic handling and 47 percent disapprove of it, according to the Real Clear Politics average. The economy has also been one of the few issues on which polls regularly find that voters prefer Trump to Joe Biden.
How to explain this seeming disconnect? Well, Trump can actually make some decent arguments to voters about the economy that are grounded in the data. For instance, the economy was pretty good during his first three years in office. And the rebound has been pretty swift. The Atlanta Federal Reserve’s “nowcast” estimates that GDP grew by a 35.3 percent annualized rate in the third quarter, which ended on Sept. 30. That still leaves the economy in worse shape than before the pandemic,1 but not that much worse.
Trump had also been able to patch a lot of holes in the economy with the series of stimulus packages passed by Congress earlier this year, which injected trillions of dollars into the economy in the form of direct cash payments, expanded unemployment benefits and protections for businesses. Indeed, one of the economic indicators that has historically been among the most reliable predictors of the election — disposable income — sharply increased amid the pandemic because of the stimulus benefits, although it has since fallen as those benefits have lapsed:
The FiveThirtyEight economic index, an element of our presidential forecast, is pretty consistent, too, with Trump’s decent approval ratings on the economy, in part because of that growth in disposable income. Here’s what it said as of Tuesday morning, and as you can see in the table below, three of the six categories we use — income, inflation and the stock market — were actually slightly positive for Trump. That partly makes up for exceptionally poor jobs numbers, and fairly poor pandemic-driven numbers on manufacturing and consumer spending. (The values in our economic index are z-scores, or the number of standard deviations above or below the mean in each category, based on past and projected economic data in the two years in the runup to the election with recent quarters weighted much more heavily.)
|Income||Real disposable personal income||+0.57|
|Inflation||Consumer price index||+0.64|
|Spending||Personal consumption expenditures||-1.11|
|Stock Market||S&P 500||+0.79|
|Combined||Average of all six indicators||-0.47|
And, overall, if we average the six categories together, the economic index is only about half a standard deviation below average. In a time of high polarization and since Trump is an elected incumbent — elected incumbents usually win reelection — this isn’t that bad. In fact, the “fundamentals” part of our model actually predicted an almost 50/50 split in the popular vote based on recent values of the economic index.
Clearly the economic index doesn’t capture all that is going on in the country, though — 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 some rough idea of how much the stimulus funding earlier in the year might have helped Trump.
Suppose, for instance, that absent any stimulus, the disposable income component of our index had a z-score of -2.39, which was as bad as the jobs component. If that were the case, Trump would then have been favored to lose the popular vote by 3 points based on the index, instead of it being tied. So maybe instead of being 8 or 9 points down in polls — given how poorly voters think he’s handled COVID-19 and everything else — he might have been 11 or 12 points behind instead.
And that probably isn’t going far enough, since the stimulus package likely also helped with other categories such as manufacturing and consumer spending. Judging by the reaction of investors after talks broke off on Tuesday, it also helped keep the stock market happy. So suppose instead that five of the six indicators in our index — everything other than inflation — had a z-score as bad as the jobs component (-2.39). Under that scenario, Trump would have been expected to lose by 8 points based on the economic index and incumbency. Throw his other problems into the mix and we’d potentially be talking about a mid-double-digit loss.
That’s certainly not to imply that the collapse of further stimulus spending will cause a further 3-point or 8-point shift in the polls away from Trump. The news comes pretty close to the election (in our model, only 11 percent of the forecast is now based on the economy and incumbency, and this will fall to 0 percent by Election Day), the stimulus wasn’t necessarily likely to pass anyway, and the failure of further stimulus funding doesn’t entirely erase the fact that people and businesses did get some help in the spring.
But it’s still a hard move to comprehend, especially at a time when the president’s numbers were already declining — mildly in some polls, and sharply so in others. And the way Trump went about it makes matters worse for him, politically. Up until this point, House Majority Leader Nancy Pelosi had faced at least a little bit of a risk: Though the stimulus might have helped Trump, she could have been partly blamed if talks collapsed. But now, Trump’s tweets make it clear that he was the one who pulled out of the talks.
Further stimulus spending was also really popular. Voters surveyed in the New York Times/Siena College national poll in late September favored a $2 trillion stimulus package by a 72-23 margin.
The possibility that the race would tighten in the stretch run because of economic improvement was one of the things helping Trump most in our model. Trump’s Electoral College chances were at 17 percent in our forecast as of Tuesday afternoon — his lowest figure of the year — but still a lot better than zero. The economic index was responsible for part of that 17 percent, however. Now, though, with voters possibly encountering news of layoffs instead of renewed growth, Trump may have undermined his best comeback strategy.